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Commerce Amendment Bill

Second Reading

Wednesday 3 September 2008 (advance copy) Hansard source (external site)

DalzielHon LIANNE DALZIEL (Minister of Commerce) Link to this

I move, That the Commerce Amendment Bill be now read a second time. The overarching objective of this bill is to provide for efficient and cost-effective regulation of the price and quality of key goods and services that are not subject to competition, and to do so in a way that promotes greater certainty, and incentives to invest and innovate for regulated businesses.

In practice the number of services not subject to competition is small. However, they tend to be important services, relating as they do to essential infrastructure such as electricity lines, gas pipelines, and airports. The Commerce Committee has recommended a number of amendments to strengthen the bill, and the Government both welcomes and supports these improvements. The bill introduces a specific purpose statement for economic regulation, which is a significant improvement to the current Act. I would go so far as to say that the absence of such a purpose statement has led to considerable uncertainty, which has affected the ability of infrastructure companies to make timely investment decisions. 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. This is to be achieved by promoting outcomes consistent with those in competitive markets, including providing incentives to suppliers to invest, innovate, and improve efficiency while requiring them to share efficiency gains with consumers and to limit excessive profits.

The bill makes it clear that regulation may be imposed only if three criteria are met: namely, there is little or no competition, and little or no likelihood of a substantial increase in competition; there is scope for the exercise of substantial market power taking into account the effectiveness of existing regulation or arrangements, including ownership arrangements; and, importantly, the benefits of regulation must materially exceed the cost. Getting the rules right is critical for promoting confidence and providing certainty for businesses, particularly for infrastructure providers who need to invest in long-life assets. One of the main criticisms of the current regime is the lack of certainty and predictability on crucial regulatory matters, such as how to calculate the cost of capital and value assets, allocate common costs, and so forth. To address this, the bill requires the Commerce Commission to develop as a priority the rules, requirements, and procedures—and we have described them as input methodologies—for regulation.

I note that submitters were unanimous in supporting the intent of these provisions, but were concerned that, as drafted, these objectives might not be achieved. It is pleasing to note that the select committee has given considerable thought to this, and recommends strengthening these provisions to require the commission to develop the rules in sufficient detail to provide predictability and certainty for businesses.

The bill as introduced provides for a right of appeal on the Commerce Commission’s determinations on input methodologies. The appeal is to the High Court, with the judge sitting with expert lay members. The select committee has recommended that should the High Court decide to amend or substitute a new input methodology it would need to meet the test of being materially better in meeting the purpose statement. This is a sensible criterion to apply in the circumstances where we have an expert body, but where it is essentially the rule maker and the regulator. In Australia there are separate bodies in the energy sector to make the rules on the one hand, and to implement the rules on the other. New Zealand simply does not have the scale to achieve the separation, so the appeal right was designed to essentially mimic the separation of functions.

The biggest change to the bill recommended by the committee is providing for appeals to the High Court on the commission’s final decisions on customised or individual price-quality paths. Submitters were unanimous in supporting such appeals. Appeals that may be lodged in order to game the process are dealt with by excluding matters already determined as input methodologies and providing for the commission’s decisions to apply, pending an appeal. For those who have read my concerns, which I expressed before the bill was introduced, about the potential for gaming, I can say I am satisfied with this approach.

Under the current regime, price control is the only response available to address markets where goods and services are not subject to competition. We consider that it is desirable to provide a range of regulatory options to provide fit-for-purpose regulation. In this regard the bill provides for the following alternative forms of regulation to price control. The first is information disclosure, which is a relatively non-intrusive form of regulation that requires firms to disclose information to the public about their costs, prices, asset management plans, and so forth.

The second option is negotiate/arbitrate. This form of regulation requires a supplier to negotiate prices in supply agreements with its customers, with compulsory arbitration if parties cannot agree. The commission will set the processes and procedures for negotiation and arbitration, and if the parties cannot agree on an arbitrator, then the commission will be responsible for appointing one.

The next is the default and customised pathway. This form of regulation requires the commission to set a simple, relatively low-cost default price-quality path for regulated suppliers for 5-year periods. The key feature of the default price path is that the rate of change in prices will be determined by the consumer price index, less a requirement for productivity improvement based on long-run productivity improvement rates for the sector. Suppliers will be able to apply to the Commerce Commission for a customised price-quality path if they can justify this—for example, because they need to make significant new investments. The commission would be required to make decisions within 12 months.

The bill has specific subparts that set out how economic regulation will apply to electricity lines business, gas pipelines, and airports. For electricity lines businesses, Part 4A will be repealed. Small consumer-owned businesses will be subject to information disclosure regulation only. This is because consumers, as owners, are able to ensure that the business looks after its long-term interests. These provisions should significantly reduce compliance costs and avoid complex regulation where the risk that the long-term interests of consumers will not be met is relatively low. However, as a safeguard, consumers will be able to petition the commission if they consider that increased regulation is required.

For other electricity lines businesses, information disclosure and the new default customised regime will apply. This new regime is expected to provide greater certainty for businesses than the current Part 4A. This is the result of a combination of design features, such as requiring input methodologies to be set in advance, provision of an upfront opportunity for firms to apply for customised paths, statutory time frames for processes, and the introduction of conventional penalties and remedies. I mention that because the real benefit is that it removes the requirement to breach thresholds before being able to negotiate with the commission, which, under the current arrangements, is an administrative settlement based on past history, rather than a customised approach going forward. The bill also provides detailed transitional arrangements. I note that the committee has recommended improvements to these provisions in response to submissions.

The key change for the regulation of gas pipelines recommended by the committee is for the gas pipelines of Powerco and Vector, which are currently under price control, to transition to the new default customised regime for other gas pipelines in 2012 rather than 2016, or at an earlier date agreed with the commission. Other gas pipelines will be subject to a default customised regime from 1 July 2010.

Specified airport activities supplied by the Auckland, Wellington, and Christchurch international airports will be subject to information disclosure from 1 July 2010, and the Commerce Commission will monitor disclosed information and report to Ministers after 2012 as to whether the information disclosure regime is effective.

In conclusion, I say that I am confident that this bill is a significant improvement on the current provisions and that it will improve certainty for businesses, provide better incentives to invest, and protect consumers from excessive prices and poor quality where there are no competitive pressures to do so. I would like to take this opportunity to acknowledge and thank the officials and the Commerce Committee for their hard work on this bill, for the careful consideration they have given to submissions, and for a unanimous and timely report recommending worthwhile improvements to the bill. I commend the bill to the House.

PowerSIMON POWER (National—Rangitikei) Link to this

It is nice to be talking on an upbeat matter in this House—the Commerce Amendment Bill. I want to pick up the Minister on something she said towards the end of her speech. Indeed, the Commerce Committee did work well on this issue. For those who have not followed this particular legislation—although if I am right, and if I may refer to you directly, Madam Assistant Speaker, you were in the Chair at the time this bill was read the first time and you took some interest in input methodologies, as I recall. But having said that, I note that the Minister is right in the sense that this bill did, in the end, get the unanimous support of the Commerce Committee. That might sound like the sort of thing that one should just sweep over when talking about a report back or a second reading of a bill, but this is extremely complex legislation.

I acknowledge the Hon Paul Swain, and just for a moment will make a comment to that effect. He really held up the end for the Labour Party on that committee and got his head around the detail quicker than most. I have to say that the discussions that occurred on that committee between the Hon Paul Swain, the chairperson, and, to a far lesser extent, myself probably saw this legislation move in a reasonably friendly and constructive way. That does not mean that there were not serious and very big consequences for many of the industries that have the potential to be covered by this legislation if the committee had got this wrong. In fact, the amount of detailed discussion that went into this was vast.

The Minister, as I recall it, wrote to the committee part-way through the proceedings indicating her suggestion that the committee look at a number of issues relating to the stages of appeal on merit review, and various other matters. That was helpful, actually, because the National Party, during the first reading, drew those matters to the attention of the Minister at that time and said that there would be some issues that we would need to deal with in the committee and it would be helpful if we could get some guidance from the Minister in charge of the bill, and that guidance came.

I will not go over the material that the Minister went over. I will leave that to the detailed discussion in the Committee stage, when we really get into the nitty-gritty around valuations, the weighted average cost of capital, and other input methodologies. I am sure that the Minister will be happy to answer any practical questions in that regard as we work our way through this bill.

There are a couple of things that the National Party will be watching. The Minister has alluded to one or two of them, but I want to make these points. During the course of the open parts of the committee—that is, the parts that were open to the public—members on our side of the table were keen to know from the submitters whether they thought the Commerce Commission had the capacity and the expertise to deliver on time the detailed input methodology requirements for the purposes of this bill. The Commerce Commission assured the committee when it came before it that that was the case, and we look forward to making sure that that indeed does occur.

On the appeals issue, the Minister made a reference to gaming, which is something that members on this side raised at the first reading. There was a lot of discussion about whether the point of appeal or merit review should occur once the input methodologies had been determined prior to the price-setting discussions commencing or at the final practical implementation stage of that pricing formula.

PowerSIMON POWER Link to this

That is right. The arguments that were made by submitters were that it should occur at both stages, and in the end there was some concern from members of the committee that if that was the case, gaming would occur using those appeal procedures to prevent that pricing mechanism from locking in and taking effect, to the benefit of consumers in the short to medium term. I am confident, and I know that National Party members are confident, that this is the right outcome, and we endorse what the Minister said about having that two-step merit review process.

I will not talk about airports, because I know that the Hon Paul Swain just loves that stuff and he will give a lengthy and detailed contribution, as we try to work out the relationship between airlines and airports. I will leave that to him and to Mr Lindsay Tisch, who has our particular interest in this area.

But could I just say in relation to the exemption for consumer-owned electricity lines businesses—again, not as straightforward as it may first look—that on the theoretical side, the model goes something like this. If the shareholder of the consumer-owned electricity lines business is the consumer, and the ultimate end benefactor of the pricing decisions is the consumer, the squeeze of pressure from the ownership and the consumer side of the equation will produce the right pricing equation. That effectively is the position whereby pricing will not enable rorting, because the consumers are the owners of the consumer-owned electricity lines businesses. I will watch this one really carefully because I think the model, in theory, makes sense. But as the Minister, I think, said in her contribution, there is a fall-back position if that does not occur, which is to directly approach the commission to ask it to have a view on more or less regulation—well, it would actually be more in that case.

But having said that, the National Party starts from the position that to add another layer of regulation the case needs to be watertight, and we were of the view that in this instance that case was not made—that in fact self-regulation, if one likes, would be able to determine the correct overall pricing outcome. But it is worth watching, and comparing it to the pricing outcomes that will occur as a result of the more regulated environment from the non - consumer-owned businesses. So that is a point to bear in mind as we step through.

I thought the Minister started quite interestingly by making reference to the purpose clause. I think she is right when she says the balance has been struck. What I am interested in is this notion of the missing market, which is the consumer of tomorrow—not the consumer of today, nor the infrastructure decisions that are made today—and what the impact will be on the consumer of the future. That is a third dimension to this pricing and purpose equation, which I think is worth monitoring and worth thinking about if indeed we ever have cause to revisit the Commerce Act in that particular sense. That is something that members will be hearing a bit more of over the weeks to come.

By and large, this was exceptionally complex legislation. I just want to conclude by thanking the Minister of Commerce for making her officials available to the National members, and for the large number of briefings that we received—or that I received—on this particular legislation. We had some spirited discussions about the nature of some of the issues that we have raised today, but I thank the Minister for giving me in particular that opportunity. I think that in the end the select committee has come up with workable legislation.

It is always interesting when one is sitting on these committees. I think it was my colleague the Hon Paul Swain, who is soon to retire—it may have been Dave Hereora; no, it cannot have been, it must have been the Hon Paul Swain—who said to me that the interesting thing about legislation like this is that all submitters agree with it in principle but there are always a couple of things around the edge that need a bit of tweaking. I think the committee did that particularly well. The committee was chaired by a member who was not from the Government side; these committees can work quite well when they are chaired by people who are not from the Government side—well, we will see. I have to say that the help we were able to get from the officials was first class. The officials who stepped us through this legislation were experts in this area. I have to say that it is some of the finest work I have seen in the last 9 years. This bill is really tricky stuff and it cannot be overstated just how difficult it is. Those officials did a fantastic job, and I hope they will be in the Chamber during the Committee stage, so that when we ask the Minister some questions, she can lean back and get the answers as we move our way through. The National Party will be supporting the second reading of this bill, and we look forward to posing some interesting and timely questions to the Minister in the Committee stage.

SwainHon PAUL SWAIN (Labour—Rimutaka) Link to this

I am extremely obliged to the kind words that the previous speaker has said about me as I am in my twilight zone.

MallardHon Trevor Mallard Link to this

Just about the statesman.

SwainHon PAUL SWAIN Link to this

I know—just about the statesman, indeed. I have my boarding pass ready to head off.

PowerSimon Power Link to this

What’s the date?

SwainHon PAUL SWAIN Link to this

I would love to know that. The problem is that I am so far out of the loop, I cannot even find it. I am part of the unbundled local loop, actually. I am obliged to that member for his kind comments. I also, I suppose, acknowledge the fine work that the member did on the Commerce Amendment Bill, as well.

PowerSimon Power Link to this

Don’t. You’ll belittle yourself.

SwainHon PAUL SWAIN Link to this

No, no. One good turn deserves another, as they say. I enjoyed the work on the Commerce Committee because, in fact, Simon Power had his head around the bill, and I thought the committee was interestingly chaired by Gerry Brownlee. Even though the member acknowledges that the bill has come through unanimously, it is fair to say it did not always have a smooth passage, which is often the case—[ Interruption] Well, I will not even comment on that, because that would ruin my speech and I am in a praising mood at the moment. The point is that Mr Brownlee had some very strong views about some things. But I thought that the debate and discussion, as the member said, improved the bill, and I enjoyed the debate.

I think the point that the member made about the officials is right. Mike Lear is one of those officials, and, of course, he is an old veteran. He was around at the time when the former National Government structurally separated the electricity industry. So Mike knows things up hill and down dale when it comes to energy, and it was useful to have him there during this time.

The member Simon Power makes the point that these issues are enormously complex. One could read a speech in a couple of minutes and say a measure was absolutely necessary, etc., but the truth is that when the providers of goods and services do not necessarily face competition, one has to be really careful in what one does. I think the classic example of that is in the electricity sector. Lines companies, for example, are basically monopolies. If one tries to regulate them too tightly, there is no real incentive for them to reinvest. Their reinvestment plans get altered, and as a result of that the lights go out. That is the really big problem. On the other hand, if one does not regulate well enough, then the monopoly has the opportunity to price gouge, and the consumers are really rorted. So a huge balancing act has to go on in any of those kinds of industries. I think it is a very finely balanced call, and the question is always whether it is appropriate to regulate, and, if so, how it should be done. There was a lot of really good discussion and debate around the electricity sector—a sector that I know the National members had some concerns about—and of course around airports too, which I will talk about in just a minute.

One of the important improvements made to the bill was around the purpose statement. I remember that when I became the Minister of Commerce, it was a very bald statement that talked about improving competition. There was no mention of consumers in the legislation, so in my time we added wording about the consumers of goods and services. What we have done now is to add on “in markets where there is little or no competition and little or no likelihood of a substantial increase in competition.” So we have tried to clarify the purpose of the legislation, and I think that is an advantage.

Simon Power talked about the issue between input methodologies and final appeals. There was lots of discussion around that. It is fair to say that the submitters were very keen on both, and I think they are well pleased. In fact, the reports I have had from people who have looked at and submitted on the bill are that they are pretty pleased with the outcome. I do not need to say any more about that, except to say I think that that is useful. I also share the member’s concerns about the potential capacity of the Commerce Commission here. That is something that the Government will need to keep in mind when this legislation proceeds, because in fact there is an enormous amount of work to be done here. I hope the commission will not be shy in coming forward if it finds that it does not have the resources to do the things that it will now be obliged to do.

I do like the idea of what is called the new fit-for-purpose regulatory powers. Under the old regime it was either price control, or not. It was an on-off switch, and that was very, very difficult. Having been in that position myself, I know that it is very, very difficult for the Minister to try to make decisions on such complicated matters. So we have a graded process, starting with the very light-handed regulation of requiring information disclosure, then moving to negotiation or arbitration, and, further on, to a default/customised path, which is the approach that has been taken for lines companies. So there are steps in there that can be used to avoid the problem of having to get into very heavy-handed regulation, where the Government tries to second-guess market signals. The problem with regulation is that decisions by regulators are always second-best to those that the market can provide. In the first instance we are trying to get contracts negotiated between two parties. If there is a power imbalance between the parties, then clearly there needs to be an independent agency, like the Commerce Commission, that steps in and tries to mimic what, in fact, a competitive industry might provide.

I want to make just a couple of quick points around the electricity lines businesses. In that area we decided that the trusts, the small consumer-owned companies, would be faced with only information disclosure—and I think that is good; it will lower their compliance costs—primarily because the people who are the consumers directly elect the trustees. There is a direct relationship there, although there were some issues around whether that would mean the trustees would therefore not want to make tough decisions, because they would get voted out if they did. I think there is still an issue lurking away in there. We found some really interesting trust arrangements, by the way. We found out that the people who appointed the trustees to Northpower were the member for Northland and the member for Te Tai Tokerau. We thought that was a fine piece of patronage, and we considered looking at replicating it around the country—it was one way of dealing with the problem. I certainly would like to see that particular piece of authority in my own area. But, to be fair, we thought that it probably was not the right way to go, and we made adjustments accordingly. Around the other electricity businesses there will be information disclosure, and the new default/customised regime will apply to them.

I have heard from the Electricity Networks Association, and it is pleased with what has happened here. It gives it some certainty, particularly around the transitional arrangements and the penalty regimes it was potentially facing, which we have now amended.

One of the hot issues was around airports. The issue there is whether Auckland airport is a regional monopoly. Is it a poor cousin to the powerful airlines, which can fly elsewhere, or is it in a position to charge airlines for things that the airlines do not think they should rightfully pay for? In the end we have decided that the airports in Auckland, Wellington, and Christchurch should be required at least to provide an information disclosure type of regime, so that negotiation around the prices that should be paid for airport services can be effective. I personally think that is the right way to go, and I will be watching to see how that pans out in the future.

In conclusion, I think the work on this bill was a really good piece of work from the committee, which I enjoyed sitting on. The issues in the bill are complex. Simon Power and I had some interesting arguments and debates, with Gerry Brownlee taking sometimes a more bombastic approach to the work in hand. But in the end we engaged in a good debate—a good argument—and came to the point we are now at with regard to this legislation. It was one of the times when select committees work well. As the member said, the committee was chaired by a member of the Opposition. This bill is a good piece of work. I think the industry will be happy and well satisfied with it. We listened to the submissions and have come back to the House with a better product, and that is due largely to the work of the officials and to some very active work from members of the select committee.

I recommend that the bill proceed.

TischLINDSAY TISCH (National—Piako) Link to this

Thank you, Madam Assistant Speaker, for the opportunity to share with colleagues this very important legislation. As Simon Power and Paul Swain indicated, we were very much guided by the officials, and I need to pass on my thanks to them for their expertise and guidance.

It is interesting that probably the most controversial debate we had surrounded airports and whether they should be included in the Commerce Amendment Bill. Some argued that, no, they were a late inclusion and should have been left out. The airlines, and Barnes Group, which represented the airlines, believed that they should be part of the regime. As Paul Swain has just shared, at the end we decided they should be part of the disclosure of the bill.

It is interesting also that this is only a second reading debate—and we do not get a chance to talk in the Committee stage—and that things like optimised deprival valuation methodology, the value of assets, the weighted average cost of capital, and such things, will have to come up at a later stage, when we will be able to ask the Minister more about those particular aspects. Also, the Commerce Committee has just concluded looking at an inquiry into the valuation methodology of State-owned enterprises. Just as we have talked throughout the debate on this bill about how assets should be valued, we have also had that other inclusion with State-owned enterprises.

As others have said, this is very complex legislation. It has wide-ranging implications, making it difficult for policy makers to predict the outcome. The question has been identified as being whether the Commerce Commission has the ability to implement the changes that we are looking at here. Does it have the resources? We will be watching very closely in terms of the regulations. We are after light-handed regulations. We believe in a self-regulatory regime, so we will be looking very closely to make sure that the regulations are able not only to be enforced but also to be fair.

New Zealand needs to focus on its commercial law and on fostering innovation and investment, and we believe that this bill goes towards that. The bill also includes a wider range of regulatory tools, with much lighter-handed options than previously existed, and that is the point that I have just made. However, the Government needs to be careful that it does not merely replace rarely used heavy-handed regulations, which is what we have had. We want to make sure that those regulations that are being brought in are not too light-handed but in fact measure up. Good commercial law depends very much on sound and reliable implementation both by the independent agencies and by Ministers.

This bill gives better incentives for infrastructure investment. 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. Also, the purpose statement of the bill gives a clear guidance to the courts and the regulator, and the aim of this regulation is to promote investment.

I want to move specifically to the area of the airports, because I think that the three airports mentioned in the bill—Auckland, Wellington, and Christchurch—are at the forefront of investment. With tourism, they are the gateways into New Zealand. We want to make sure, though, that there is fairness and equity in the way they operate. I for one have spent time with Auckland International Airport on the Business and Parliament Trust. I was privileged to have a 2-week secondment with it back in the year 2000 and again in 2003.

TischLINDSAY TISCH Link to this

Yes, 2 weeks—1 week, then a following week 3 years later. So I have seen the progress that that company has made, and it is certainly a leader in what it does. When it comes down to looking at the fairness and equity that was proposed by the airlines and their representative, Barnes Group, it is important that the disclosure previously mentioned will actually operate. So they are being regarded as monopolies, and the bill moves to make sure that monopolies do not exceed their responsibilities.

In the case of airports, one would say that they are not operating as a single till, which was a phrase used constantly during the submission process. Each entity within the airports was operating and charging separately. So the point was that they should really be charging as a whole. The information that was supplied to the Commerce Committee indicated that some airport companies over-recovered in regards to airfield activities. They over-recovered in the charging under the Commerce Commission scenario based on historic cost of specialised assets, and also under the Commerce Commission scenario of using the optimised depreciated replacement cost for specialised assets.

In the bill the regulatory regime for setting airport charges moves into the Commerce Act. I will just quote here from one of the submissions, because it probably crystallises and articulates quite clearly what the bill is designed to do. It requires the Commerce Commission to develop mandatory input methodologies covering matters such as how to value assets and treat asset revaluations for information disclosure purposes. Secondly, it moves the current information disclosure requirements for the three airports that I mentioned before, from the Airport Authorities Act to the Commerce Act, and it strengthens the requirements and gives the Commerce Commission the responsibility for monitoring what those airports are disclosing. Thirdly, it provides for a transitional review by the Commerce Commission where the commission thinks from its monitoring that an inquiry should be held to see whether some regulatory controls should be introduced. So airports will be able to treat information disclosure separately from pricing and will be able to continue to set prices as they see fit. If they do this at the price reset at 2012 the Commerce Commission could look at what they have done, and, if convinced that they are monopoly pricing, could recommend to the Minister of Commerce that an inquiry be held. Inquiries take 2 to 3 years, so it could be 2015 or later before anything is done to address a situation of gross overcharging that could be occurring. It is unlikely therefore that any changes would take place before 2016 or 2017. So those were the points that came up from the airlines in particular.

On the other side of the equation of course were the airports, which have argued that the current regulatory regime has been in place for 20 years; it has worked well, so why change it? That was a strong argument that they put up. They also said that this would be a disincentive to major and new investment. If we go back to what the purposes of the regulations are, which are contained in new section 52A, set out in clause 4—I will not go through it because time does not permit—it clearly identifies what the nature of the legislation is designed to do. The airports also said, of course, that in some jurisdictions there were no regulations. They mentioned Scotland. They also mentioned that in the UK the Civil Aviation Authority was looking to take regulations off its Stansted and Manchester airports, although it might be difficult in the Stansted case. They also said that Sydney has a deregulated environment. So those were strong arguments that came up from the airports.

I guess where we are coming from is that we will be watching very closely these developments once the bill is introduced and the Act is in place, because, as Simon Power said, we will be watching the role of regulations to make sure that they actually work. Although this legislation is replacing those heavy-handed regulations with much light-handed regulation, we want to make sure that they are fair and equitable. Those are the points that I will be talking about and asking the Minister about during the Committee stage, because we want to make sure that the Commerce Commission, which is now going to be given a very important task, is actually going to enact this legislation in the manner in which the select committee has worked very diligently to make sure is fair and equitable to all.

BrownPETER BROWN (Deputy Leader—NZ First) Link to this

I intend to take only a short call, because New Zealand First was not on the Commerce Committee and reading this bill is awfully technical. I listened to Simon Power, and I can imagine that anybody on the select committee would need extensive briefings to be up to speed with the legislation. I see that both National and Labour are supporting this bill, and that pleases New Zealand First, no end.

The area about which I am particularly concerned, and particularly delighted, is that of airports, because the first bill I handled when I came to this House was the Airport Authorities Amendment Bill. I was brand new to politics—

PowerSimon Power Link to this

I remember that.

BrownPETER BROWN Link to this

I think it was before your time.

BrownPETER BROWN Link to this

Oh, the member remembers No. 2; this was No. 1 in 1996 or 1997. When I read that bill, I thought “This is not good enough.” New Zealand First was in coalition with the National Party. It wanted to have no regulation whatsoever, but there I was, brand new, saying “This is not good enough.” I do not think it is being unkind to say that the bill was of low priority. Even my own colleagues thought “Will you please get on with it, and settle it.”, but there I was saying “It is not good enough.” I was hauled up to Jenny Shipley, who was Minister of Transport at the time, and she said how important it was to have a deregulated environment. But I sensed the danger of monopolies, having worked for quite some years in seaports. Then I got hauled up to Bill Birch. He had an army of young up-and-coming Treasury officials with him, and they gave me the lecture on how one does this with no deregulation whatever. In the end Winston Peters and I sat down one night and worked out the best compromise we could sell to our coalition partner, a compromise that was based on consultation. But we know now that it has not worked.

So we are delighted—and I am particularly delighted because of that personal experience—that both National and Labour have come together and said that airports need some form of control. The control is modest—it comes under an information disclosure regime and monitoring—but it is a significant step forward. The control probably does not go as far as the airlines would like it to go, but that is not a bad thing, and it goes probably a little bit further than the airports want to go, which is a good thing. So I think the select committee has reached a reasonable compromise.

I understand that an international aviation consultancy, Jacobs Consultancy, has measured the performance of 50 international airports around the world. Auckland Airport came out on top for aeronautical revenue as a percentage of total costs, it came out on top for operating profit as a percentage of revenue, and it came out on top for operating profit per passenger. That should tell us all that something has to be done. Those are the areas where one does not really want to be top of the pops.

New Zealand First will be supporting this bill, probably all the way through. We, and I on a personal basis, are absolutely delighted that we are finally doing something about airports. I congratulate the National Party on going down the road to Damascus and having an enlightening experience.

TuriaHon TARIANA TURIA (Co-Leader—Māori Party) Link to this

Tēnā koe, Madam Assistant Speaker. Tēnā tātou katoa. The purpose of this bill is to amend the Commerce Act 1986 in order to reform its regulatory control provisions to do with the important services of infrastructure providers of gas and electricity and the airports. As others have stated, it is a complex, technical piece of legislation, not easily understood, particularly if one has not been a member of the Commerce Committee. I have always had some issues with the concept of consumer or client, as if it is a meaningful term. If we were to turn to the Oxford Dictionary to find out what a consumer is in real terms, it describes services, products, expected to have a long, useful life; goods, or, as in consumerism, the preoccupation of society with the acquisition of goods. Well, in the Māori Party we are a little bit different and we talk mostly about people—a radical concept, I know.

So we have turned to the amendments made by the Commerce Committee to see how the people have reacted towards proposals to introduce even lighter, non-price forms of regulation than were previously in force. The purpose statement in new Part 4$ is to be amended to safeguard consumers from excessive prices. There is nothing we would disagree with there. In explanation, the commentary on the bill describes the inherent tension in the bill, with some submitters more concerned about incentivising investment than about consumer protection. The so-called solution is seemingly more to focus on profit and investment rather than, as I said before, to promote consumer protection. So the level of protection is not to ensure affordable prices but to limit their ability to extract excessive profits, yet, curiously, there is no definition of what is described, or defined, as excessive.

That one specific example is indicative of the emphasis in this bill, which appears to be about competitive markets, more than it is about consumer protections. I am reminded of the warning from American economist Milton Friedman who said: “Many people want the Government to protect the consumer. A much more urgent problem is to protect the consumer from the Government.” One of the disappointing features of the consultation process that was undertaken for this bill was that although a total of 39 submissions were received, not one was from the end consumers whom this bill is supposed to protect. All of the submissions were from service suppliers, and one from the Hon Justice Randerson of the High Court, who was consulted for specific advice on appeal clauses.

So really, how can one protect the consumer from the Government if the people are not being heard in the first place? The Māori Party believes that there needed to be some mechanism, other than submissions to the select committee, to get feedback from consumers, given their key role. Maybe focus groups of consumers should be considered as an important mechanism for gaining the thoughts of that group. A bill that ostensibly enables price and quality control for the purpose of improving outcomes for consumers should logically have sought the feedback of those people in the first instance. The bill would look quite different if it had consumers at the centre and if they had been guaranteed some kind of voice in the process. Failure to involve the people who are supposedly to benefit from the outcomes of competitive markets is a huge risk, which works to the benefit only of the corporations—the moneymakers—rather than the unsuspecting public.

Another key issue, other than the lack of robust consultation mechanisms, is the failure of this bill, and, indeed successive Governments, to adequately regulate monopolies, following the privatisation process. Dr Geoff Bertram, an economics lecturer up at Victoria University, stated that privatisation has been notoriously unsuccessful in New Zealand. In his contention, there are many horror stories of big transnational organisations trying to buy up our infrastructure, and, similarly, monopolies that do not care about service delivery, quality, or affordability, but just about their profit. His conclusion, therefore, is that natural monopolies—public or private—need to be kept on a leash; and there is no escaping the need for proper regulation.

What we have seen in successive Labour and National Governments is that they have failed to adequately regulate monopolies, following privatisation. That has resulted, as we all know, in price increases, reduced service quality, and run-down infrastructure. I recommend to members that they read Jane Kelsey’s critique of the Commerce Act entitled Reclaiming the Future: New Zealand and the Global Economy. In that analysis Jane described the Act as one of the Labour Government’s earliest moves towards light-handed regulation. She concluded that because New Zealand has such a permissive merger and acquisition regime, it needed a robust mechanism to prohibit anti-competitive behaviour, and her report concluded that this was lacking.

So we in the Māori Party came to this bill thinking the policy failure would be acknowledged, but it was not to be. With the introduction of even lighter non-price forms of regulation it will be less likely that price and quality will be regulated, as there will be other options for the commission to steer towards. We believe that if we do not have price regulation, well then, we really do not have any regulation. We do not consider self-regulation will work. Our analysis of the amendments by the select committee further underlines the effect of even lighter non-price forms of regulation, in fact. So we will be opposing this bill, and not on behalf of consumers and clients but on behalf of the people. Kia ora.

TremainCHRIS TREMAIN (National—Napier) Link to this

I rise to speak to the Commerce Amendment Bill this evening, as we move through urgency towards 12 a.m. The bill has a very strong focus on regulatory certainty and accountability, which is very important to modern world-leading economies. Without regulatory certainty and regulatory accountability it is very difficult for companies involved in infrastructure, like electricity line or gas line companies, to have certainty in regard to investment. I will give the example of Vector Energy to provide members with some idea as to why world-leading regulation in this area is important. It has to do with Vector Energy looking overseas to refinance its balance sheet last year. A number of its directors went to the UK, as I understand, and looked to secure funding for gearing or leveraging the company’s balance sheet. The financiers whom they spoke to told them they would be required to pay a premium in terms of funding costs because it was felt that the regulation in New Zealand around those types of infrastructure was cumbersome and unwieldy. As a result they were required to pay a premium on the cost of funding for their balance sheet. Where do we think the premium for the cost of that funding ultimately ends up? Well, it ends up in the cost of the distribution of power, the cost of the distribution of gas, the cost of all sorts of things within those infrastructural companies. At the end of the day, it ends up with the consumer facing increased prices.

There is no doubt that modern world-leading regulation in this area is critical. It will ultimately lead to better opportunities for our companies to fund themselves, lower premiums for their interest rates, and, I think, ultimately better prices for consumers. This is legislation that the National Party supports, and I acknowledge the work of our team—particularly Simon Power and Gerry Brownlee—and I certainly know that members of the Opposition worked diligently on what is complex legislation to bring it to this point in the second reading, and to have all parties, with the exception of the Māori Party, agreeing at this stage.

For those who are listening to this debate, the objective of the legislation was to provide a more effective, more credible regime to address the potential exercise of market power, where competition is not possible. We are talking about the likes of gas lines and electricity lines, where to bring two or three players into the market is simply unrealistic and impossible. So we get these monopolistic organisations by the very fact that it is impossible to have competition there. The problem with monopolies of this nature is that we need to make them as efficient as possible, and the danger is that without competition they become unwieldy and bloated, and they increase the costs to consumers quite unnecessarily.

The second objective of the legislation was to improve the certainty, timeliness, and predictability for regulated firms. I know that within my own electorate of Napier our lines company Unison has had significant problems with regulation. It has faced major changes in its prices or in the negotiation of its prices, with uncertainty in the regulation and how it would value its capital assets. It has just been an ongoing nightmare for them. There is no doubt that the lack of certainty and the lack of clarity in the regulations have meant there have been higher prices for consumers than would otherwise be the case.

The third objective of the legislation is to provide for incentives for regulated firms to invest in infrastructure, and that is what we need to do. If we want a modern economy, and if we are serious about growing the wealth of this nation and about lifting wages, then there is no doubt that our basic infrastructure has to be world-leading. If the companies that are involved in this space are not investing in that infrastructure, then we will not go forward. We will not have the types of infrastructural assets that New Zealanders believe are necessary for us to drive a modern economy. So providing those incentives is critical.

The last objective of the bill is to minimise the regulatory costs involved in addressing changes and increases in prices and addressing the other regulations. There is no doubt that the compliance costs around this type of regulatory regime go into the millions of dollars for these companies, as they address changing their prices with the Commerce Commission and the various other organisations that affect prices. Those are some of the key objectives in the bill.

I will not take a long call as I was not involved in the select committee, and it is indeed complex legislation, when we come down to the detail. I just want to summarise effectively what I have said. Regulatory certainty and accountability is critical for these types of infrastructural assets within the country. It is great to see that this legislation is taking that step forward. It is providing certainty and clarity for these types of companies, and I think that that is indeed a step forward and that is why the National Party will be supporting this bill. Thank you very much.

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A party vote was called for on the question,

That the Commerce Amendment Bill be now read a second time.

Ayes 112

Noes 4

Bill read a second time.


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