27 July 2005

Gas pipeline services to be subject to regulation

The gas pipelines services provided by Powerco and Vector are to be subject to regulation which is expected to result in price decreases for consumers, Energy Minister Trevor Mallard announced today.

“After detailed consideration of the issues and following an extensive and thorough process and inquiry by the Commerce Commission, I have decided to accept their recommendation that the gas pipelines services provided via the gas distribution pipelines owned by Powerco and Vector be controlled, under Part 5 of the Commerce Act 1986,” Trevor Mallard said.

“The Commission in its inquiry found that gas pipeline prices are only subject to limited competitive pressures, and that the gas pipeline companies, Powerco and Vector, are charging excessive prices and taking excessive returns. For example the commission found they were earning an after tax return on capital of 12.7 and 13.5 per cent respectively, but that a fair return would be about 8 per cent.

“Control is expected to result in a price drop in the gas pipeline services provided by Powerco and Vector as the Commerce Commission acts to remove monopoly rents. The Commission estimates that the average Vector pipeline customer could see a drop of 18.5 per cent in pipeline prices (an average drop in annual gas bill of $114) while the average Powerco pipeline consumer could receive a 12.2 per cent decrease ($51 reduction).

"The government also agrees with the Commission's other recommendation that the regulatory constraints for all gas pipelines be strengthened by the implementation of a targeted (thresholds) control regime. This would be modelled on the current electricity lines regime in the Commerce Act under which explicit thresholds or revenue paths are set by the Commission and control can be imposed if the threshold is breached.

“We will be introducing legislation to Parliament to achieve this. Such a regime should ensure that gas pipelines businesses do not exploit their position of power, while at the same time, retaining the light-handed regulatory approach in New Zealand that this government is committed to.

“Once the regime is established, the gas pipeline services in respect of the gas distribution pipelines owned by Powerco and Vector will be transferred from Part 5 control to the new targeted (thresholds) regime."

The papers relating to this decision are available at www.med.govt.nz/ers/gas/control-inquiry/index.html

ENDS

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