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Commission to administer gas pipeline services

27 July 2005 / 007

Commission to administer gas pipeline services

Energy Minister Trevor Mallard has accepted the Commerce Commission’s recommendation that gas pipeline services provided by Powerco and Vector be controlled, under Part 5 of the Commerce Act.

The Commission found in its gas control inquiry report that competition in the gas pipeline industry was limited and excess returns were being made by Powerco and Vector. In November 2004 it recommended that the Government move to control these two companies, and introduce a thresholds regime for the industry.

“The Commerce Commission is pleased the Government accepted our recommendations,” said Commission Chair Paula Rebstock.

“Moving to control Vector and Powerco means the companies will no longer be able to take advantage of their market power. There will be benefits for consumers, with the potential for significant price drops.”

The Commission could not say at this stage exactly what the savings to consumers would be, said Ms Rebstock, but its analysis suggested a saving on distribution prices of up to 12.2 percent for Powerco customers and 18.5 percent for Vector customers could be achieved over time.

Ms Rebstock said the Commission was also pleased the Government had agreed a regulatory thresholds regime should be brought in for gas pipeline services.

Control of Vector and Powerco will be effective from 25 August. At that time the Commission is required to authorise prices. This will be a provisional price authorisation, and the Commission will undertake further investigation and consultation to determine final authorised prices.

Ms Rebstock said the Commission would carefully balance the benefits to consumers and the investment incentive effects on the businesses.

“Achieving that balance is important for the long term benefit of consumers.”

Background The Commerce Commission commenced its inquiry into gas pipelines services in April 2003 following a request from the Minister of Energy under the regulatory control provisions of the Commerce Act. The Minister requested the Commerce Commission to make recommendations on whether or not supply of gas pipeline (transmission and distribution) services should be controlled. The Minister has requested the Commission to complete the inquiry by 29 November 2004.

Under the Commerce Act, the Commission is required to consider two issues to determine whether control may be imposed: whether competition in the supply of gas pipeline services is limited or likely to be lessened; and whether control is necessary or desirable in the interests of acquirers or suppliers of gas pipeline services.

Having determined whether control “may” be imposed, the Commission was then asked to consider additional matters to determine whether control “should” be imposed. The additional matters include: the efficiency costs of achieving reductions in excess returns; the magnitude of the benefit of acquirers; and the impact of a recommendation not to control.

A copy of the Commission’s final report and subsequent advice to government is available on the Ministry of Economic Development’s website, http://www.med.govt.nz/ers/gas/control-inquiry/

ENDS

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