Draft gas pricing decision based on flawed methodologies

Draft gas pricing decision based on flawed methodologies

The Commerce Commission’s draft gas distribution and transmission price decision, released today, closely follows its draft decision for electricity. Both decisions are based on flawed methodologies, such as asset valuation and WACC, and an incomplete regulatory package, said Vector Chief Executive, Simon Mackenzie.

“Today’s announcement by the Commission sets both price and quality levels for Vector’s gas pipeline businesses. The Commission’s draft decision proposes that we reduce our gas distribution prices by an average of 16 percent and gas transmission prices by an average of 25 percent from 1 July 2013.

“This is frustrating as we reduced prices on our Auckland gas distribution pipeline by over 20% in real terms from 2005. At the time, the Commission also determined that Vector’s other gas pipeline businesses did not warrant price regulation. Our gas pipeline prices have been capped at inflation from 2008.

“The Commission is relying on asset valuations which are nearly ten years old, having rejected more up to date valuations,” he said.

“We are concerned at the Commission’s approach to capex and opex investment in gas transmission and distribution.

“We also find it difficult to reconcile the Commission’s position against the Minister of Energy’s view of the criticality of the gas infrastructure in New Zealand and the need to ensure that those assets remain in excellent condition.

Mr Mackenzie said this reinforces that the company’s decision to challenge the Commerce Commission’s input methodologies is the right one.

“The Commission’s decision will need to be revised if the merits review court action, taken by Vector and others, is successful,” he said.

ENDS

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