Part 4 – gas pipeline services

Purpose of this presentation High-level overview of Part 4 regulatory regime Highlight some key statutory provisions Overview of default/customised price- quality regulation under Part 4 (as set out in the Commerce Act 1986 (the Act))

Overview of Part 4 Outline of Part 4 (s 52B) Purpose statement (s 52A(1)) 3 regulatory instruments: price-quality paths, negotiate-arbitrate regime, and information disclosure (ID) requirements. Price-quality regulation: default/customised (EDBs [non- exempt]; GDBs; GTBs), individual (Transpower)

How is Part 4 regulation imposed Inquiry – whether/how; recommendation to Minister; OIC; s 52P determination (s 52E); CC or Minister initiated (s 52H); requirements on CC (s 52I – 52K); requirements on Minister (s 52L - 52M) Can be regulated only if goods/services supplied in a market where there is little or no competition, and little or no likelihood of a substantial increase in competition (s 52G(1)(a)

How regulation imposed - continued Other conditions (s 52G(1)(b) – (c) and s 52G(2)) e.g. benefits in meeting Part 4 Purpose exceed costs Add/delete/change description of any pipeline (s 55A(5)-(6))

Input methodologies Purpose Role Content (s 52T(1)) - in dispute Process (s 52V) - in dispute What has been set - in dispute Merits review (‘closed’ record; 2012) Appeals on error of law (2012)

Default/customised price-quality regulation Purpose (s 53K) “...is to provide a relatively low-cost way of setting price-quality paths for suppliers of regulated goods or services, while allowing the opportunity for individual regulated suppliers to have alternative price-quality paths that better meet their particular circumstances.”

Default price-quality path (DPP) DPP sets maximum price(s) and/or maximum revenues, quality standards, and regulatory period (s 53M(1)) Regulatory period – years (s 53M(4) and (5)) Set by way of a s 52P determination (resets by way of amendment – s 53P(1)) What must s 52P determination include (s 53O) How to reset (s 53P)

Customised price-quality path (CPP) – application DPP must be in place (s 53Q(1)) Must comply with IMs (s 53Q(2)) Only one proposal during a regulatory period (s 53Q(3)) Cannot withdraw a proposal (s 53R(a)) Bound for a regulatory period (s 53R(b))

CPP assessment Preliminary assessment (s 53S) 40 days to assess whether proposal complies with IMs If not comply, CC may discontinue consideration of proposal or request more information Assessment (s 53T) Given notice proposal under consideration Consult

CPP assessment - Continued 150 working days from receipt of complete proposal (s 53T(2)); can be extended by agreement – s 53U If not meet deadline, CPP proposal takes effect (s 53ZA(4)) If >4 proposals in a year, CC may defer/prioritise (s 53Z))

CPP determination CC may determine any CPP it considers appropriate (s 53V(1)) Price-quality path may be less favourable to supplier than DPP (s 53V(2)(a)) If set lower/higher price, claw-back may apply (s 53V(2)(b))

CPP determination - continued Set by way of amendment to DPP (s 53V(3)) Can agree to vary an IM (s 53V(2)(c)) years regulatory period (s 53W)) CC’s costs must be met by proposer (s 53Y)

Clawback Section 52D – applying claw-back is the CC doing either: “requiring a supplier to lower prices on a temporary basis in order to compensate consumers for some or all of any over-recovery that occurred under the prices previously charged by the supplier” (must be spread over time – s 52D(1)(a), (2)) “allowing a supplier to recover some or all of any shortfall in its revenues that occurred under the prices previously charged by the supplier” (must be spread over time – s 52D(1)(b), (3)).

End of CPP – what happens? Subject to DPP (s 53X(1)), until end of that DPP regulatory period or new CPP applies (s 53X(3)) Starting prices under DPP are those at end of CPP, unless notice of change (s 53X(2)) When on a CPP, can apply for another CPP (s 53X(4) BUT conditions (see s 53Q) Expiry of Order that gives effect to the Gas Authorisations is treated as if it is expiry of a CPP (s 53X applies) (s 55H(2))

If IMs change DPP/CPP cannot be reopened within a regulatory period on grounds of a change in an IM, except where: IM changes as result of appeal; and Had that IM applied at time of price- quality set it would have resulted in a materially different path being set (s 53ZB(1) and (2)) Claw-back must be applied (s 53ZB(3))

Enforcement (s 86 – s 87B) Pecuniary penalties for breach of ID / DPP / CPP (on application of Commission to the Court) Court may also order compensation Offence (any person could bring an action) if intentionally contravene ID / price-quality requirements

Gas pipeline services Defined (s 55A) Exempt pipelines (schedule 6) Subject to ID and price-quality regulation (s 55C & s 55D) DPP to be set as soon as practicable after 01/07/10 (s 55E(2))

How initial DPP is set As if a reset under s 53P BUT as if 30 June 2010 is end of previous regulatory period (s 55F(1)) for GPBs not subject to Gas Authorisations AND as if expiry of Gas Authorisations is the end of previous regulatory period for GPBs to which the Gas Authorisations apply Discretion to apply claw-back – CPI (s 55F(2)) Discretion to apply claw-back – if IM would have resulted in materially different path (s 55F(4))

Process to date/next steps Initial DPPs for GPBs - Draft Determinations and Draft Reasons Paper released on 21 November 2011 Following consideration of submissions, DPP has been deferred until after additional IMs set Notice of Intention - developing additional IMs required by the Court Draft ID requirements released December

NAME: Dr Ruth Nichols TITLE: Senior Legal Counsel TELEPHONE:

CONTACT To contact the Commission with information about false or misleading trading practices, or anti-Competitive behaviour by businesses CALL the Contact Centre on WRITE to Contact Centre, PO Box 2351, Wellington