A fourth local authority, Palmerston North City Council, has changed its water network connection arrangements as the result of a Commerce Commission project to ensure that all local authorities are aware of and comply with the Commerce Act.

The Commission's Commerce Act Manager, Jo Bransgrove, said that the Commission began focusing on local authorities last year because it was concerned that most had poor knowledge of the Act and some did not even realise that it applies to them.

The project will continue with investigations and education activity as long as is required.

Ms Bransgrove said that the Palmerston North investigation was into issues that are proving a concern to many councils - how to ensure that contracts for maintenance of and connections to water networks are not anti-competitive.

Previously three other Councils have changed their contracts to ensure that they are not anti-competitive, and comply with the Act. A fifth investigation is continuing.

Several other councils have come to the Commission asking for information about how the Act applies to water contracts. The Commission uses Manukau City Council as a good example of how competition and health and safety issues can be successfully resolved.

In the Palmerston North investigation, the Commission's view was that the Council was at risk of breaching the Commerce Act because of the way it restricted access to contractors wishing to carry out work on the water, stormwater and sewerage networks.

The Council advised the Commission in June last year that all maintenance of and connections to the networks would be done by a Council business unit, City Enterprises. Soon after, the Commission received the first of six complaints from Palmerston North businesses about the Council refusing to allow other contractors to tender for work on the networks.

The Commission investigated, and has now received signed undertakings from the Council that its arrangements have been changed to ensure that they comply with the Act.

"Lack of understanding of the Act, rather than deliberate breaches, seems to have been the problem," Ms Bransgrove said.

"The Commerce Act is a complex piece of law, and if any local authority is unsure of its business practices, then I strongly advise it to get information from the Commission and advice from lawyers specialising in this area.

"We will continue to investigate specific matters as necessary. We will issue warnings and enter into settlements so that organisations will change their behaviour to prevent possible breaches, but serious or repeated breaches may result in court action."

Background

Section 36 of the Commerce Act prohibits organisations that are dominant in a market, from using that dominance for an anti-competitive purpose.

In the Commission's view, the Palmerston North City Council is dominant in the markets for water, sewerage and stormwater services because the networks it owns are monopolies that cannot be economically duplicated. It used that dominance anti-competitively in markets that are competitive - those for making connections to and maintaining the networks.

As well as being an exclusive arrangement with its own business unit, the Council also bundled together the expertise and equipment-intensive work of network maintenance, with the comparatively straightforward connection work. Such arrangements prevent small contractors competing to provide connection work.

The Commission accepts that there are important health and safety concerns about water, stormwater and sewerage networks, but notes that some local authorities have met these without using potentially anti-competitive contracts. One option that does not appear to raise competition concerns involves the local authority setting criteria that contractors must meet to be authorised to make connections to the network. Property owners can then choose which authorised contractor they hire.

Media contact: Commerce Act Manager Jo Bransgrove

Phone work (04) 498 0958

Communications officer Vincent Cholewa

Phone work (04) 498 0920

Copies of Commission media releases can be viewed on its web site www.comcom.govt.nz