Commission issues draft report on Christchurch International Airport
The Commerce Commission has released a draft of its report to the Ministers of Commerce and Transport on the effectiveness of the information disclosure regulation in relation to Christchurch International Airport.
Christchurch Airport’s proposed prices over the next 20 years target a return of 8.9%, which is significantly higher than the Commission’s view of an acceptable return of between 6.6 – 7.6%.
“Our draft finding is that information disclosure regulation has not had a significant influence on Christchurch Airport. In particular, information disclosure has not constrained Christchurch Airport from targeting excessive profits over the next 20 years”, said Commerce Commission Deputy Chair Sue Begg.
For the first five years of the 20-year period Christchurch Airport has decided to set relatively lower prices to avoid price shocks to consumers. It appears that the drop in demand following the Christchurch earthquakes has been the influential factor in this decision, rather than information disclosure. This decision means that Christchurch Airport is not targeting excessive profits over the first five years.
In terms of the other performance areas that we have considered, Christchurch Airport appears to have incentives to innovate and is providing services at a quality that reflects consumer demands. However, it is unclear whether information disclosure has had much impact on these. We also consider that information disclosure has not been as effective in promoting pricing efficiency as we would have expected.
“Although the regime has only been in place a short time, we have not seen evidence that Christchurch Airport has had direct regard to it, in particular in ensuring the transparency of its approach to setting prices”, said Ms Begg.
The review does not make any recommendations about whether regulation other than information disclosure should apply to Christchurch Airport (or whether information disclosure should continue to apply). This is outside of the scope of the review required by the legislation.
The full draft report is available at http://www.comcom.govt.nz/section-56g-reports/.
Written submissions are welcome. Submissions should be sent to regulation.branch@comcom.govt.nz by 5pm on 12 November 2013. Cross-submissions are due by 5pm on 26 November 2013. The Commission’s final report to the Ministers about Christchurch Airport has a target completion date of 19 December 2013. The reports for Wellington and Auckland Airports were completed earlier this year. These reports are also available on our website.
Background
What is information disclosure regulation?
Information disclosure is the most light-handed type of regulation available under Part 4 of the Commerce Act 1986. Wellington, Auckland and Christchurch International Airports are subject to information disclosure regulation. Information disclosure regulation requires certain information to be disclosed publicly by the suppliers of goods or services regulated under Part 4. Information disclosed includes financial statements, asset values and valuation reports,
prices and pricing methodologies, plans and forecasts, and quality performance statistics.
The information required to be disclosed is set out in a determination made under s 52P of the Commerce Act. We determined the Commerce Act (Specified Airport Services Information Disclosure) Determination 2010 on 22 December 2010. It took effect on 1 January 2011.
For more information on the disclosure requirements, including our reasons, visit http://www.comcom.govt.nz/airports-information-disclosure/
What are input methodologies?
Input methodologies are the upfront rules and processes of regulation set by the Commission which underpin Part 4 regulation. For example, input methodologies concern things such as the valuation of assets, the treatment of taxation, the allocation of costs, and the cost of capital. We first published input methodologies for Auckland, Christchurch and Wellington Airports in December 2010.
To set information disclosure requirements, we are required to apply the relevant input methodologies. The airports, on the other hand, only have to apply our input methodologies for information disclosure purposes. Our input methodologies did not, and continue to not, apply to the airports’ powers and functions under the Airports Authorities Act 1966 (AAA), which includes setting charges/prices for airport services. Christchurch Airport is challenging a number of the Commission’s input methodologies in the High Court.
For more information on input methodologies, including our reasons, visit http://www.comcom.govt.nz/input-methodologies-2/
Which airport services are regulated?
Information is required to be disclosed about only some of the services provided by the three airports. The services are: aircraft and freight activities, airfield activities and specified passenger terminal activities (refer s 56A(1) of the Commerce Act). Each of these services is defined in section 2 of the AAA. These definitions are quite broad and include non-exhaustive lists of the types of activity that are considered to fall within each of these categories. Section 56A(1)(d) of the Commerce Act provides for other airport services to be regulated under Part 4, if required. At present other services, such as car-parking and retail, are not regulated under Part 4.
Prior to information disclosure regulation under Part 4, these airports were subject to information disclosure regulation under the AAA.
What is our task under s 56G of the Commerce Act?
Section 56G(1) requires the Commission to review the information disclosed under information disclosure regulation and report to the Ministers of Commerce and Transport on how effectively that regulation is promoting the Part 4 purpose. We are to carry out this review and report to the Ministers as soon as practicable after a supplier sets any new price for an airport service regulated under Part 4 of the Commerce Act in or after 2012. We must consult with interested parties in preparing our reports.
What is the purpose of Part 4?
The purpose of Part 4 is to promote the long-term benefit of consumers. It does this by promoting outcomes that are consistent with outcomes that are produced in competitive markets such that Christchurch Airport:
- has incentives to innovate and invest, including in replacement, upgraded, and new assets; and
- has incentives to improve efficiency and provide services at a quality that reflects consumer demands; and
- with consumers the benefits of efficiency gains in the supply of the regulated goods or services, including through lower prices; and
- is limited in their ability to extract excessive profits.