Commerce Amendment Bill

Hon LIANNE DALZIEL (Minister of Commerce) Link to this

I move, That the Commerce Amendment Bill be now read a first time. At the appropriate time I intend to move that the bill be considered by the Commerce Committee, and that the committee report finally to the House on or before 22 July 2008.

This bill comprises a new Part 4 of the Commerce Act, replacing Parts 4 and 4A and amending related sections of Parts 5 and 6 of the current Act. In summary, the new Part 4 puts in place a forward-looking purpose statement for the regulation of services not faced with competition. The bill improves the test and processes for considering whether to regulate such services. It provides for the upfront development of rules, processes, and procedures—which we call input methodologies—so that businesses can get certainty over what to expect. It provides for alternative, lighter-handed forms of regulation as fit-for-purpose alternatives to price control, and it puts in place improved regulatory regimes for our electricity lines, gas pipelines, and the three main international airports. The bill also upgrades penalties, offences, and remedies provisions, and it improves the working of some parts of the restrictive trade practices provisions.

This bill is primarily a back-to-basics rewrite of the price control provisions of the Commerce Act 1986. It has drawn on best-practice regulation in other OECD countries, and it has benefited greatly from three rounds of consultation with stakeholders over the last 18 months. The main objective of the bill is to provide for efficient and cost-effective regulation of the price and quality of goods or services that are not subject to competition. In practice, there is a very limited number of services that fall into this category, and they are the important infrastructure services—electricity lines, gas pipelines, and airports.

All countries in the OECD regulate these types of services, because they are essential and because, in the absence of regulation, suppliers could charge excessive prices or provide poor-quality service. So the issue is not whether we need powers to regulate these types of services; rather, it is whether we have in place the appropriate regulatory framework to ensure that we get the benefits that consumers would expect from a competitive market, as well as the investment in innovation and infrastructure that this country needs. In other words, how do we balance the need to protect consumers from excessive prices while ensuring that suppliers have incentives to invest, to innovate, and to improve efficiency so we can be assured of reliable, efficient supply over the long term? I believe that the new bill gets the balance right, and that it makes significant improvements to the current legislation.

For the first time, the bill puts in place a purpose statement for economic regulation. The absence of a purpose statement in Part 4 of the current Act has led to uncertainty as to the objective of this form of regulation. The new purpose statement makes it clear that the objective is the long-term benefit of consumers of goods or services that are not faced with competition or the likelihood of a substantial increase in competition. The bill aims to do this by promoting outcomes consistent with those produced by competitive markets, including providing incentives to invest, innovate, and make efficiency gains while requiring suppliers to share gains with consumers and to limit excessive profits.

The bill upgrades the test for when regulation may be introduced. Specifically, it requires that there is little or no competition, and no likelihood of a substantial increase in competition. In the bill there is substantial scope for the exercise of market power, taking into account the effectiveness of existing regulation or arrangements—including ownership arrangements—and, most important, the fact that the benefits of regulating clearly exceed the costs and risks of regulating. In contrast to the current Act, goods or services may not be regulated under the proposal unless the Minister has the benefit of advice from a full inquiry by the Commerce Commission. Decisions on whether and how to regulate will rest with the Minister of Commerce, in consultation with the relevant sector Minister.

A major improvement to the current regime is the proposal that we will require the Commerce Commission to develop as a matter of priority the rules, requirements, and procedures, collectively called input methodologies, for regulation. Businesses have complained about a current lack of certainty and predictability in the rules on crucial matters, like how to calculate the cost of capital, to value assets and to allocate common costs. The bill requires the commission to set input methodology for electricity lines, gas pipelines, and airports by 30 June 2010.

In recognition of the importance of the rules, we are providing for merits review, by way of a right of general appeal on input methodologies. Appeals will go to the High Court, which will sit with expert lay members. Appeals must be submitted within 20 working days and will be limited to consideration of the material and documentation before the commission. The original Cabinet decision had a narrower form of merits review. However, I was persuaded to broaden the criteria, particularly as the input methodologies had been the focus of all the litigation in the past, and it is important that we get those right. There is a question about why there is no second right of appeal on individual cases, but I believe that that would create a serious risk of gaming. This is why we have provided for appeals on only points of law for final commission decisions relating to specific firms.

Most disputes about final decisions are in fact disputes about what the rules or input methodologies should be, so it is much more important to provide full appeal rights on the rules rather than on the implementation of the rules. We also saw the need to retain a balance between providing accountability for the regulator, and allowing it to get on with its job rather than being tied down with litigation.

One of the limitations of the current Act is that it provides for price control as the sole response to the exercise of market power by suppliers with natural monopoly characteristics. The Government considers that other more appropriate regulatory options should also be available. Accordingly, the bill provides for the power to put in place the following alternative forms of regulation. The first is information disclosure. This is a relatively non-intrusive form of regulation, which requires regulated firms to disclose information to the light of day about their costs and prices, asset management plans, future intentions, and the like.

The second is a new negotiate/arbitrate form of regulation. This requires a supplier to negotiate prices and supply agreements with its customers, with mandatory arbitration if they cannot agree. This form of regulation has proven successful overseas, in encouraging the parties themselves to hammer out agreements that best suit their requirements. The processes and procedures for the negotiation, and any arbitration, would be set by the Commerce Commission, and the commission would also appoint an arbitrator if the parties cannot agree on one.

Third, the bill provides for a new form of regulation called default/customised regulation. This replaces the current thresholds regime in Part 4A. This requires the Commerce Commission to set a default price-quality path for regulated suppliers for 5-year periods. The start prices may be existing prices or amended prices, with the rate of change in prices to be determined by the consumer price index less a requirement for productivity improvement based on long-run productivity improvement rates for the sector. Suppliers may apply to the commission for a customised price-quality path if they have special requirements, such as needing to make significant new investments.

The bill provides specific subparts covering the three sectors that are currently subject to economic regulation—namely, electricity lines businesses, gas pipelines, and airports. First, on electricity lines businesses, the Government has decided that 100 percent consumer-owned businesses—numbering about 16—should be subject only to information disclosure requirements. This is because consumers as owners are able to influence rates of return and price-quality trade-offs made by their businesses. However, as a safeguard, consumers will be able to petition the Commerce Commission if they consider that a business should be put on the default/customised regime. The remaining lines businesses—about 11 in total—will be subject to the new default/customised regime as well as to information disclosure, instead of the Part 4A thresholds regime. The replacement of Part 4A is expected to provide much more certainty for businesses, including giving them an upfront opportunity to get approvals for customised price-quality paths to cover the cost of a step change in investment requirements, for example.

Second, in relation to gas pipelines, I tell the House that the pipelines of Powerco and Vector will continue to be under price control until 2016, or until any earlier date agreed with the Commerce Commission, at which time they will go on to a default/customised regime. Other gas pipelines will be subject to a default/customised regime in a new information disclosure regime from 1 July 2010. Third, airport companies are currently subject in varying degrees to information disclosure under the Airport Authorities Act. I think it has been welcomed and well-received that they will come under the jurisdiction of the Commerce Act in future.

This bill is a major improvement in the way we think about and regulate basic services that are not subject to competition. It applies best-practice approaches from around the world. I commend this bill to the House.

SIMON POWER (National—Rangitikei) Link to this

The National Party will support the passage of the Commerce Amendment Bill at its first reading, and its going to the Commerce Committee in order for the committee to undertake some further work in some of the key areas the Minister has outlined today. The Minister is right when she says we are dealing with a complex area of law, and what is proposed is quite a major change. It is quite a major change from the regime that we have had up until now; in fact, it significantly alters existing Parts 4, 4A, and 5 of the Commerce Act.

The bill introduces a new purpose statement for Part 4 in new section 52A(1), inserted by clause 4: “to promote the long-term benefit of consumers in markets … by promoting outcomes …” that ensure “suppliers of regulated goods or services—(a) have incentives to innovate and to invest”. That in itself is a worthy statement, and in National’s view it would be very difficult to disagree with it, because it includes the replacement and upgrading of new assets. It also makes sense that those suppliers have incentives to improve efficiency and to provide those services at a quality that reflects consumer demands.

Equally important to the new test is that the supplier shares with consumers the benefits of efficiency gains, including through lower prices. Indeed, we add to that particular purpose statement a limitation on those suppliers’ abilities to extract excessive profits. The reason for introducing this statement is that the general purpose statement for the existing Commerce Act, of promoting competition, is considered to be unhelpful for sectors where competition is not viable. So a new test relating to the long-term benefit of consumers requires inclusion and clarification, but equally important in many respects is the incentive for these organisations to invest in the long-term infrastructure of New Zealand.

A new test for imposing regulation is also contained in the legislation. The test for imposing regulation has been changed from whether competition is limited and control is necessary or desirable in the interests of acquirers to a new test where goods or services may be regulated only if they are supplied in a market “where there is little or no competition and no likelihood of a substantial increase in competition.” We know that that test also needs to include the substantial scope for the exercise of market power, and whether the benefits—and this is actually extremely important—of regulating the goods or services and meeting the purposes of the Act exceed the costs of regulation.

The two separate review processes for deciding whether to regulate and how to regulate will be rolled into one process. As I read it, the Minister’s existing right to impose regulation without the commission undertaking an inquiry will be repealed.

The new tools for regulation are an important step. Before I start to go through that particular work, I take this opportunity—and I should have done this in my opening remarks—to thank the Minister of Commerce and her officials for taking the time to keep the National Party informed throughout the select committee process and for making the officials available, on more than one occasion, for briefings and the like. This has not been an easy path to tread for the officials or for those engaged in the political arena. It is a pretty delicate area of the law. I want to put on record my thanks to the Minister for making sure that we were fully involved in that process.

I return to the new tools for regulation. The alternatives to imposing price control that the commission is to be provided with include, as the Minister said, stricter information disclosure, and that includes asset management plans, investment proposals, prices, projected regulatory accounts, and projected quality out-turns; a second negotiate/arbitrate regime; a default customised price quality path—and I will come back to that, because there may be some further discussion in the select committee about some of the dates around the click-in period for that new path—and the customised price quality control for individual businesses. It is fair to say that the new regulatory regime proposed by the Minister is more light-handed than full price control. We want to be sure that the availability of more light-handed measures does not result in more regulation overall. That will be a test to be looked at, a discussion that we will need to have, just to ensure that we are not replacing a rarely used heavy-handed lot of regulation with a more readily used but light-handed series of regulations. We will be looking at that issue pretty carefully on the select committee.

The bill requires the commission to set the input methodologies. They include things like weighted average cost—valuing assets and allocating common costs. According to the bill, the commission is going to develop generic and sector-specific input methodologies. It is those input methodologies that will initially be subject to merits review. This is a difficult and tricky part of the proposal. A merits review will generally take the form of an appeal to a High Court judge assisted by two expert lay members. But as the Minister knows, I have had some concerns that an appeal is available only for challenging decisions on the input methodologies. That may seem to be a bit of an abstract concept to the people who are listening to this debate, but it means that if those regulations or input methodologies are determined, the only opportunity to challenge them by way of merits review relates specifically to the way the input methodologies came about and the way they were determined. In other words, there is no ability to seek a merits review for implementation issues or the practicalities around seeing through the decisions that have been made post the input methodology decision-making.

I understand why the Minister wants there to be only one level of merits review—I think I do, anyway. I think it is because the Government and the Minister want to avoid a whole lot of gaming between the commission and the people who are making applications or who are subject to the arrangements by the commission. But I have signalled to the Minister on more than one occasion that I think that when the merits review kicks in, and whether one or two merits reviews are appropriate, will be matters that the select committee members should spend some time on forming a view on, to convince themselves that they are not going to limit the ability to protect the consumer and the issues around investment in infrastructure by having only one merits review at first instance—to use a clumsy phrase—following the determination of input methodology.

I will quickly mention the airports issue. My view is that transferring the regulatory regime from the Airport Authorities Act to the Commerce Act is of merit. We should have a good look at that during the select committee process.

This legislation is technical and difficult, and the industries affected by it will be extremely interested in its passage. I signal to the Minister now that I am interested in some of the dates around the continuation under price control until the default customised regimes are negotiated and come into place. I will be very interested in testing some of those dates and finding out why they were chosen, and in having a discussion about what is significant about 2016 and 1 April 2010. I will be interested in having those discussions at the select committee.

It is actually misleading in some respects to call this bill simply the Commerce Amendment Bill. It does indeed amend the Commerce Act—or purport to—but it has far-reaching consequences around competition, price control, consumer protection, and new disclosure regimes, and it needs to be treated with the seriousness at the select committee that it deserves.

Hon PAUL SWAIN (Labour—Rimutaka) Link to this

Firstly, I agree with the member that this kind of legislation is incredibly complicated. It is difficult, and I say that with some experience as a former Minister of Commerce, who left the hard decisions, particularly on airport matters, to the present Minister, Lianne Dalziel—probably because it was a bit beyond me, to be fair, although other people say that I just ran out of time. The truth is that the Commerce Amendment Bill is enormously difficult and complicated, and it will take the time of the Commerce Committee to look into it in great detail.

Before the select committee at the moment is the Electricity Industry Reform Amendment Bill, which looks at issues to do with lines companies and whether they should be allowed to extend their involvement in energy generation, and at the relationship between retail and lines businesses, and another issue that was raised at the select committee this morning is what the relationship is, if any, between the legislation we are looking at there and this bill, in relation to lines companies. That is something that both the chair and I are keen to investigate, to see whether in fact there is a relationship, and if there is to make sure that the two are somehow in sync. So it is enormously complicated and we will obviously have to spend a lot of time on it.

I want to get to some of the important bits, and, as the Minister has said, the bill is about providing efficient and cost-effective regulation of the price and quality of key goods and services that are not subject to competition. In fact, as she said, there are not many such services. The bill is primarily aimed at electricity lines, gas pipe lines, and airports. When it comes to airports, the problem we had when we were looking at the issue, particularly with Auckland airport, was the complaints from the airline industry that an airport like Auckland obviously had airlines over a barrel. It could charge whatever it liked, and it was charging on its landing charges in order to boost up its facilities within the airport. There was a lot of cross-subsidising going on, or so airlines said. It was always difficult to know, because the airline industry was not exactly an enormously poor cousin in this issue. When we look at the situation across the world, the only thing we can say with any certainty is that airlines accuse airports of ripping them off and airports accuse airlines of not being sympathetic to their development needs. Airports also argue that they are not a monopoly because airlines can fly somewhere else. So this was part of the issue when we came to look at whether airports should be regulated, and it was enormously difficult.

One of the issues that I think is being fixed in this legislation is the issue of how to value the asset. We got into great discussions, for example, about what the value is of a sea wall around an airport. It is a necessary piece of work, but is it part of the airfield or part of some other form of infrastructure? Asset valuation is an enormously difficult thing. Of course, at the time a lot of these things were under the Airport Authorities Act. Although the Minister of Commerce and the Commerce Commission could have conducted inquiries into these matters, the next point was that there was available the use of only a very blunt instrument—one either regulated or one did not. That was enormously difficult, and trying to get to the bottom of it all—trying to get decent information, trying to have a methodology on what to do with that information, and then coming up with a formula to regulate in an area as complex as the airline industry—was really, really difficult.

Dr RICHARD WORTH (National) Link to this

The Commerce Act and the Securities Act are two significant statutes that touch individuals’ business activities and transactional arrangements more closely than, perhaps, any others. Here we are dealing with far-reaching changes to the Commerce Act in the Commerce Amendment Bill, and, as the previous National Party speaker said, National supports this bill going to the Commerce Committee.

The Commerce Amendment Bill is very much challenging and high-stakes legislation. The challenge can be seen in the fact that the bill itself is 84 pages long. It is very tightly worded legislation, and in many cases there are issues within the clauses on which reasonable people can justifiably hold differing views. I do not doubt it will be the subject of intense and perhaps robust debate.

When the Minister of Commerce was making her opening comments she said that this bill had “drawn on best-practice regulation” from other countries. I express the hope that, in addition to doing that drawing, we have actually reflected in this bill such best-practice regulation. A number of philosophical questions have to be debated. Is the regulatory framework appropriate? Is it protective of appropriate interests? Is it sufficiently robust? And, finally, is it sufficiently practical?

One of the challenges that the Commerce Committee faces is that the advisers who assist the committee in its determination of the merits of legislation are very much in-house advisers; they are steeped in knowledge, I do not doubt, but, nevertheless, are committed to implementing Government policy. I believe that this is the type of bill where there is a clear need to appoint external advisers. Why? Firstly, external advisers so often have the necessary practical experience, which may be lacking within the ministry, and, second, they set up a foil that the committee can sit in judgment on as to which is the preferred policy outcome.

Dr RICHARD WORTH Link to this

It is an argument that is often run on a number of bills, and we saw how successful it can be in the Limited Partnerships Bill. One needs only to look at the concessions that were made by the ministry officials to see that in some areas, when practical consideration is taken of particular provisions, change may well be justified. I am certain that that will be the case here.

It has been said that the Commerce Amendment Bill gives better incentives for infrastructure investment, and that infrastructure businesses—like electricity lines companies and airports—will gain improved incentives to innovate and invest while consumers will be given protection from excessive prices and poor quality. As others have said, the bill amalgamates Parts 4 and 4A of the Act, which apply to sectors where there is little or no competition or prospect of competition, such as electricity lines, gas pipelines, and, now, airports. Sectors like these are regulated, as the Minister of Commerce said, in other OECD countries.

A number of instances may well have triggered the need for the types of changes that we see in the bill—particularly in the electricity industry. For example, in January 2006 the Commerce Commission announced that it intended to take control of Transpower’s prices. The State-owned enterprise needed to spend staggering sums—perhaps in the order of $4 billion. It had submitted some of those projects to the Electricity Commission for approval. The Electricity Commission’s job was to satisfy itself that the proposed spending was efficient, and Transpower—with some justification, I would say—assumed that if it got the tick-off from the Electricity Commission, it could reasonably get past the other taskmaster, the Commerce Commission. But that was not to be; the Commerce Commission leapt in, effectively overriding not only Transpower’s board but also the Electricity Commission.

We also saw the impact of intervention in the market, and how that can produce inappropriate impacts, in connection with events touching Vector that members of the House may recall. Several years ago Vector’s shares had closed at $2.41. The Government issued two policy statements to which the Commerce Commission had to have regard, effectively telling the regulator to ease up on the electricity lines industry. The next day Vector shares jumped 24c, adding $240 million to its market value. A day later the commission announced its intention to take price control of Vector. It said Vector would make excessive profits of between $13 million and $70 million in the next year; the share price plunged 27c, wiping $270 million off Vector’s value. It will be recalled that some analysts described the commission’s action as bizarre. Whether it was or was not is not really the issue in debate here, but it does point to the need for a better-developed regime.

The bill also introduces a purpose statement specifically for this part of the Act, to give clearer guidance to the courts and the regulator that the aim of regulation is to promote investment.

As I see it, there are seven main changes to the bill. Firstly, for the first time there is a clear emphasis on the importance of incentives for regulated businesses to invest. Second, there is a requirement for the Commerce Commission to clearly set out the regulatory rules, which are called input methodologies, applying to these businesses, and to complete this work by 30 June 2010. As others have said, these rules will be subject to merits review by the High Court. Merits review is a review as to the merit of the decision, as distinct from whether there are errors of law disclosed in the reasoning process. Clearly, specifying the rules will greatly improve certainty and predictability for businesses, and improve business confidence.

Third, the main changes will allow what one could call “fit for purpose” regulation, such as information disclosure and a negotiate/arbitrate regime, as an alternative to full price control. Fourth, there will be a much simpler and more predictable regime for electricity lines businesses, removing the threat of relatively heavy-handed regulation for minor breaches of thresholds, and with time limits for commission decisions. Fifth, there is a more appropriate regime of information disclosure for small electricity lines businesses owned by local consumers where the customers are essentially the owners of the business. That is, obviously, going to lower their compliance costs; it will result in savings to consumers. Sixth, there is an enhanced regime for gas pipelines, which enables the proposal of a price path to the commission. Seventh, there is a more robust information disclosure regime, compared with that of the Airport Authorities Act, for the Auckland, Christchurch, and Wellington international airports, with monitoring by the Commerce Commission.

Finally, the bill also includes some tidying-up relating to the clearance or authorisation of business mergers. I think, probably, the most significant changes centre on section 69. There is a new provision to enforce undertakings that are made by parties to the proposed merger.

I welcome the further debate on this bill and its merit. These regulatory frameworks are particularly important.

DAIL JONES (NZ First) Link to this

New Zealand First supports the Commerce Amendment Bill going to the Commerce Committee. I believe I recently heard a comment from the Commerce Commission that it would be giving more attention to competition issues. I think that is a very responsible attitude and a very modern one—one that has been around in Europe for quite some time, with the attitude of the European Union to big companies—and it is about time something like that happened more vigorously in New Zealand.

Of course, this legislation, the Commerce Amendment Bill, relates to provisions enabling price and quality control being imposed where competition is limited and control would be in the best interests of acquirers. The gas pipelines of Powerco and the Auckland pipelines of Vector are currently under such control.

The reasons why price and quality control are required are mentioned in the explanatory note. The key reason given for providing for price and quality control, or economic regulation, is to counter the ability of firms that are not faced with competition or the threat of competition to charge excessive prices and/or reduce quality.

I expect words like that will be music to the ears of many of the struggling families in New Zealand who constantly see their power prices going up and wonder whether anyone is trying to do something to make sure that electricity companies and gas companies do not just keep adding on and making sure their shareholders get substantial profits, especially when many of those shareholders are overseas and the profits go overseas. New Zealand First is always very concerned to make sure that people in that situation do get some protection, and this bill offers a strong ray of hope to those people in our community.

Some reasons are given as to why the principal Act requires amendment, and I want to mention a couple of them. The explanatory note of the bill states: “there is uncertainty about the rules governing regulatory decisions (such as the cost of capital):”. We are always against having things that are uncertain in legislation. Certainty is always important, especially to a lawyer. It also states: “the lack of a credible information disclosure regime to constrain the exercise of market power by 3 international airport companies in the supply of aeronautical-related services:”. Again, one is always very concerned about a monopoly-type situation where airport companies just seem to add on and add on charges to their users. Inevitably, it is always the customer trying to get through the gate who has to pay, despite what everyone else might say, and New Zealand First is very concerned that the average traveller does not get ripped off by companies that want to make substantial profits and, once again, send them off overseas where they have substantial interests.

The various forms of regulation have been mentioned, such as information disclosure, a negotiate/arbitrate regime, a default/customised price-quality regime, and individual price-quality regulation. But then the specific sectors are also referred to, and I want to make a few comments about them.

The bill states that electricity lines businesses—called “ELBs” in the bill—which are currently subject to Part 4A, are to be subject to various arrangements from 1 April 2009. It is good that a select committee will be looking into these issues. I hope that all those ordinary users of electricity or gas pipelines and suchlike who complain about the Government and members of Parliament not doing something to protect their interests will take the opportunity to get their various interest groups to make submissions to the select committee. There is nothing worse than being a member of Parliament and one has put some legislation before the House and it has been passed, and about 6 months later someone comes along and complains and says: “Why didn’t you do this?”, and one says: “Well, 6 months ago, we did it. Where were you at that time?”. Of course, it is always terribly frustrating when one has actually supported a particular viewpoint and people supporting the other party come along and say: “What are you going to do about it?”, when one has actually done the work and the other party is opposed to it. That is always frustrating, as every member of this House will know. So I hope that all those people who are interested in electricity and gas prices will take an interest in this legislation and make submissions to the select committee.

We in New Zealand First are very interested in the situation at the airports. One of the most difficult things to do is to get information from limited liability companies that have their own rules and regulations, and the provisions of the Companies Act and various other legislation, to protect the disclosure of information—commercial or otherwise—and that are monopolies. As has been indicated, the bill imposes information disclosures on the Auckland, Wellington, and Christchurch international airports from 1 July 2010. The bill is almost euphemistic when it says that these airports have strong natural monopoly characteristics. I would have thought that either something is a monopoly or it is not. But, no, the bill states that they have strong natural monopoly characteristics. They are currently subject to information disclosure under the Airport Authorities Act, but this bill’s regime, which has been explained already, will set up a different form of regime that does not appear to be as harsh in the sense of the methods that have to be utilised to give effect to issues, but will be faster and more appropriate in terms of the Commerce Act remedies.

One of the things that always interests me with regard to legislation—and it is something that has not been touched on today—is the penalties. I think it is useful for the public to know that when things go wrong and people do not comply with the law as passed by Parliament, there are substantial penalties that can be imposed. Just flicking through the bill I see that, for example, proceedings for pecuniary penalties can be commenced, and some of the penalties relating to contravention of undertakings must not, in respect of each act or omission, exceed $500,000. That does not sound terribly high, but they are increased in respect of offences relating to information disclosure and regulation, with fines not exceeding $200,000 in the case of an individual or $1 million in the case of a body corporate. So that is getting tougher. There are also pecuniary penalties for contravening price-quality requirements. The legislation states that the amount of pecuniary penalty must not, in respect of each act or omission, exceed $500,000 in the case of an individual or $5 million in the case of a body corporate.

So it seems that this bill has a very worthwhile objective. It seems that the method of remedying problems is being improved, and for those companies that wish to try to bend the rules, there are reasonable penalties. Of course, in this area there is such a substantial amount of financial gain to be obtained that one wonders whether the penalties are adequate and whether consideration should be given to inserting a penalty if a default continues on a daily basis—a daily-basis penalty rather than a broad figure. On the face of it, this bill seems to be a reasonable bill, and New Zealand First will support its referral to the select committee.

The ASSISTANT SPEAKER (Hon Marian Hobbs) Link to this

Just before I call the next speaker, I draw the attention of the members to the level of noise here. I can hear people chatting from the other end of the Chamber.

NANDOR TANCZOS (Green) Link to this

My apologies; it may well have been my voice that was upsetting the member. The Green Party is pleased to support the Commerce Amendment Bill. We think it represents significant revisions to New Zealand’s anti-trust legislation, which was inherited from a time of laissez-faire economic ascendancy and is entirely inappropriate in the modern world.

The bill will create incentive-based regulation for sectors where natural monopolies exist. Of course, it is absolutely essential that there be such regulation, because those monopolies are not subject to normal market disciplines of competition. The bill addresses, in particular, lines companies, gas pipeline companies, and airports. It creates a number of new initiatives to broaden the purpose of the legislation: to control prices, to incentivise investment, to mandate efficiency gains, and to enforce better disclosure. Those are all things that we absolutely support.

Section 54Q, “Energy efficiency”, which is to be inserted in the Commerce Act by clause 4 of the bill, states: “The Commission must provide incentives to improve energy efficiency and demand side management, and to reduce energy losses, when applying this Part in relation to electricity lines services.” We are very pleased to see that in the bill, and we are very happy to support it. It is absolutely essential that the regulatory framework for lines companies incentivises energy efficiency and demand reduction.

Section 52A, “Purpose of Part”, which is also to be inserted in the Commerce Act by clause 4, states: “(1) The purpose of this Part is to promote the long-term benefit of consumers in markets referred to in section 52 by promoting outcomes that are consistent with outcomes produced in competitive markets so that suppliers of regulated goods or services—(a) have incentives to innovate and to invest, including in replacement, upgraded, and new assets;”—that is absolutely vital and it was lacking in the previous framework—“and (b) have incentives to improve efficiency and provide services at a quality that reflects consumer demands; and (c) share with consumers the benefits of efficiency gains in the supply of all or any regulated goods or services, including through lower prices; and (d) are limited in their ability to extract excessive profits.” That is vital.

It is interesting to reflect, just as a little aside—and I am aware, of course, that telecommunications are regulated through other legislation—that the mindset behind the current legislation, which was regulating Telecom until this Government introduced some new regulations, is the same mindset. It just did not address the need to deal with those things that I have just said. Both of the sections I have just mentioned mark a sea change in Government thinking and a return to a more humane economic model. It is a move away from the failed laissez-faire economic policies of both Labour and National during the past two decades, and it is very welcome.

The bill starts well by having a purpose. The original 1986 Act had no purpose statement, which is bizarre. Secondly, the new purpose is to promote the long-term benefits of consumers. It is much more humane than the soulless criterion of economic efficiency in the original Act—a criterion that still holds sway in Treasury and with many members of this House. The benefits must be long term, not short term, and they must be for consumers, not for some fictional “New Zealand Inc.” or multinational corporation. Personally, the Green Party would have preferred to see the documents talk about the citizens of New Zealand, but it is a bill about markets and the way in which we regulate natural monopolies, so we can live with “consumers”.

The second provision is that the Commerce Commission must provide incentives for energy efficiency, which I have mentioned. Finally, after years of the Green Party’s calling for efficiency measures throughout the economy, we will have them considered as part of any cost-benefit analysis in this legislation—at least, as far as the lines companies are concerned. The only improvement that we think could be made to this clause would be to mandate that the discount rate for energy efficiency, as outlined in the New Zealand Energy Strategy, be used for this purpose. We will discuss that at the select committee, as well, and we will be keen to see some movement on it. It would guarantee a transparent and level playing field for all parties and would encourage efficient investment that benefits both society and the environment it relies upon.

The bill brings New Zealand into line with current best practice for managing natural monopolies. It will benefit business with greater certainty, while enhancing the powers available to the Commerce Commission to regulate. Significantly, the bill broadens the purpose of the legislation to encompass much more than the former narrow-interest purpose of efficient markets. As I have said, its purpose now is to promote the interests of consumers and share with them any benefits of the efficiency gains, and that is important.

The bill also allows the Commerce Commission to define critically important input methodologies—the methods used to calculate the cost of capital, value assets, and allocate costs. This will help to clarify the true business position of natural monopolies, thereby removing another avenue for stalling the implementation of price control. As I say, the Green Party is very happy to support this bill and we thank the Minister for introducing it to the House.

HONE HARAWIRA (Māori Party—Te Tai Tokerau) Link to this

Tēnā koe, Madam Assistant Speaker. Any bill that needs an explanatory note of 48 pages is cause for concern, particularly when it is slipped into the House just when everyone is gearing up for a long weekend, so we had a good look at this one.

The purpose of the Commerce Amendment Bill sounds good: protecting consumer interests by promoting competition, incentives for investment and innovation, sharing efficiency gains with consumers, quality services, etc., etc., and limiting excessive profits—yeah, right! But to understand why we are in the position we are in at the moment, one has to look back to the 1980s and 1990s and the obscene rush of successive Governments to flog off the nation’s assets, when we got rolled by big business and transnationals swooping in, buying up all the infrastructure, cutting back on people and services, and shipping all the profits back overseas.

That continuing privatisation of State assets and trading activities was the focus of the Privatisation by Stealth conference held in Christchurch last week to highlight the attempts by transnationals to swoop on Auckland International Airport and the Lyttelton Port Co., and the continued push for privately owned toll roads, road construction, State housing projects, rubbish collections—the list is endless.

Emanuel Savas, an adviser to both Ronald Reagan and Margaret Thatcher, said in his 2000 book Privatization and Public-Private Partnerships: “privatisation is like dismantling a bomb—it must be done very carefully, for wrong decisions can have nasty consequences. There are obstacles to be overcome, arguments to be rebutted, proponents to be mobilised, and opponents to be thwarted”. Yet we have allowed the very core sectors of our economy to be taken over by transnationals—our rail, our power, our transport infrastructure, and even our banks—and the Government has been so hopeless at regulating those monopolies that we have been locked into price increases, reduced service quality, and infrastructure run-down.

Electricity, of course, is the classic sector. There have been mergers and takeovers at grossly inflated prices; our electricity supply has been allowed to end up in the hands of transnational big business; and there are empty dams, while everyone points his or her finger at everyone else instead of owning the problem and dealing with it. The big sweetener, of course, was supposed to be cheaper power, but what we got were price hikes of 5 to 15 percent, and the Government having to pass more legislation in 1999 to try to rein in those power companies. People were dying in 2007 because corporate profit was considered to be more important than people’s lives.

KATRINA SHANKS (National) Link to this

It is a pleasure to stand in the House tonight and talk to the first reading of the Commerce Amendment Bill, which National supports.

This bill is quite complex. When I picked it up this morning I thought I would have a quick look through it to get a feel for it, but I realised that it is not as simple as that. The debate has been very interesting. I know that many of the speakers before me, including the Minister of Commerce, the former Minister of Commerce—Paul Swain—and Simon Power, have all had briefings on the bill and have quite a lot of background knowledge. When they got up to speak I learnt so much. It is kind of shocking, when one is about to speak to a bill, to be sitting here learning about it. But that is one of the great things about Parliament and the process of bills before the House. That is how we learn, and much as we think we should know it all when we get here, we do not. The opportunity to hear everybody debate legislation is actually quite important.

I would like to acknowledge the previous speaker, Hone Harawira. Although I did not agree with absolutely everything he said, it was interesting to hear his viewpoint. That is the great thing about the country we live in, the democracy we live in, and the Parliament that we have today.

Again, I say it is my pleasure to stand here tonight to talk to this bill. But, first, I would like to say good evening to all those people in Auckland in peak-hour traffic. They probably have another hour before they get home—

Hon LIANNE DALZIEL (Minister of Commerce) Link to this

I move, That the Commerce Amendment Bill be referred to the Commerce Committee, and that the committee report finally to the House on or before 22 July 2008.