Soft-spoken watchdog carries big stick

Paula Rebstock says the Air NZ-Qantas plan was a great test of the commission's independence. Picture / Fotopress

Paula Rebstock could be seen as the embodiment of Theodore Roosevelt's maxim: speak softly but carry a big stick.

The Commerce Commission chairwoman last week wielded the biggest stick the competition laws give her, imposing price control on the gas pipeline companies Vector and Powerco.

It is a first. Only once before has the commission recommended price control, on Auckland Airport, and in that case the Government shrank from giving the go-ahead.

It might be seen as evidence of a more active, even aggressive approach by the competition watchdog to its task generally.

Rebstock prefers to call it assertive. "We have become more assertive about meeting our obligations on the enforcement side. Some people may not like it but it is a necessary thing for the commission to do."

The soft-spoken but incisive American economist has served on the commission since 1998, taking over the chairmanship in December 2003.

An electricity industry source, speaking on condition of anonymity, recalls some trepidation when the appointment was made.

"She was seen as the most inquisitorial and potentially threatening of the commissioners. Possibly too academic. Well, either she's mellowed or we have."

His verdict now?

"A huge improvement on all of her predecessors."

The highest-profile matter to come before Rebstock (so far) was the proposed alliance of Qantas and Air New Zealand.

The commission rejected it, a decision which drew an angry reaction from Finance Minister Michael Cullen and reinforced respect for the commission's independence.

"From time to time during Qantas-Air New Zealand and afterwards people would say to me that they expected the commission to come to a different view and that it would feel some pressure to do so.

"We were never pressured by anyone in Government to come to any view. It was a great test of the independence of the commission and of the respect the Government has for that independence. We came through that with flying colours."

While Rebstock and the other commissioners put themselves about talking to business and being generally accessible, it is a different story when a matter is before them.

Informal talks with parties who might be seeking comfort from commissioners are seen as out of order.

"The same company which wants some comfort from having direct access to commissioners when they are the applicants will say when they stand back from individual applications: 'Please maintain transparent processes so that when you make a decision all interested parties have equal access to the commission'.

"Some things should not happen behind closed doors where other interested parties can't have their say," Rebstock said.

"It's an issue all regulators struggle with. It is hard to resist the temptation to sit around a table and carve out a solution because sometimes it looks like there is an obvious solution."

As part of a renewed focus on enforcement, the commission has turned its attention to systemic anti-competitive behaviour in industry sectors, as distinct from looking just at individual firms or transactions.

"We had become concerned about cartel behaviour," Rebstock said.

"Cartels can go on for many years and the economic harm is to competitors, to downstream businesses and, obviously, to consumers. Often it affects your international competitiveness too."

The commission has five investigations under way into suspected cartels. Only one, the corrugated box market, has been made public.

To facilitate such investigations, the commission is lenient towards whistleblowers. "Since we put that policy in place last November, we have had five applications for leniency - two of them the day after we made the announcement."

The commission has also begun a major investigation of market behaviour in the generation and retailing sides of the electricity industry, prompted by a "significant number" of complaints from individual consumers and major users of electricity.

As enforcer of the Fair Trading Act, which covers misleading advertising, the commission has cases before the courts against the airlines and credit-card companies.

"When you advertise a headline price should it reflect what the customer will actually pay? It is an issue which affects many industries.

"And at what point does the non-disclosure of fees and conditions become a breach of the act? We are taking a number of cases to try to get the guidance of the courts."

Rebstock said the commission's refocusing on its traditional business was partly so it could be sure, if the Government initiated industry-specific regulation, that it was because general competition and consumer law did not suffice.

"We don't want it to be because the commission has not used the powers it has under the Commerce Act and the Fair Trading Act to address market behaviour issues as efficiently as possible."

The commission's role has expanded considerably in recent years into ongoing regulatory oversight of telecommunications, the electricity lines companies, the dairy industry and now gas pipelines.

Rebstock said there were benefits in giving such functions to a general competition authority, rather than an industry-specific regulator.

"It is far more likely that a competition authority such as ourselves will use general competition law to its fullest extent wherever possible before resorting to industry-specific regulation, and as soon as we can let go of industry-specific regulation we will be more comfortable to move back to reliance on general competition law," she said.

"That's important because whatever you aim to achieve you will achieve at less cost if it is possible to use general competition law. It will be a less costly intervention, if it is up to the task."

An industry specific regulator, on the other hand, may be well informed about the issues in that particular sector but less attuned to the needs and workings of the wider economy.

The "thresholds" regime the commission designed for the electricity lines companies has attracted international interest.

It is based on signalling what would be acceptable behaviour in terms of pricing and only taking steps to control prices if companies breached those thresholds.

Rebstock describes it as "reasonably light-handed, a sort of half-way house between relying on general competition law and industry-specific regulation".

"That regime has been in place since 2001 and thus far we have not controlled any company ... However we have seen quite significant changes in prices in some of the companies. It is something that has happened without the commission having to step in to force it to happen."

Eight lines companies have had sustained price reductions.

"But there are also eight companies which were earning well below the return on capital they needed to sustain their businesses. We have signalled to them that they need to possibly look at their rates of return and whether to make the investment they need for the future. In some cases, the companies have begun to do that.

"I would argue that the benefits to their consumers are as great as the benefits to the consumers that were paying too much in the past."

Paula Rebstock

* Paula Rebstock is from Montana, United States.
* She came to New Zealand 18 years ago with husband Ulf Schoefisch (now chief economist of Deutsche Bank). They have two daughters and live in Auckland.
* She has worked as a Treasury economist, an economic adviser in the Prime Minister's Department in Jim Bolger's day and as general manager, policy, at the Department of Labour.
* She joined the Commerce Commission as an associate commissioner in 1998 and was appointed chairwoman in December 2003 for a three-year term.