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Current as of 26/05/17 01:00PM NZST

Vector gas meter sale gets regulator OK

By Ben Chapman-Smith

Photo / File
Photo / File

The Commerce Commission has given Vector the green light to buy out Contact Energy's natural gas metering business, despite claims the merger would lessen competition in the market.

Announcing its decision today, the Commerce Commission said it had assessed the extent to which Vector and Contact currently competed for the supply of gas meters and whether the loss of any rivalry would lead to a substantial lessening of competition.

Commerce Commission chairman Mark Berry said it appeared there was "limited competition" between Vector and Contact and other market participants for the supply of gas metering services.

"The parties argued that prices are conditioned by the prospect of the wholesale replacement of meters, rather than by existing competitors competing to install the relatively small number of new meters that are installed each year.

"We agreed with this and in our view, this would still be the case whether Contact retained its gas metering business, or sold it to a third party."

Vector and Contact both provide gas meters, and related services, and these gas meters are connected to the North Island's natural gas distribution network.

The proposed acquisition would result in the merger of the two largest suppliers of gas metering services on the North Island's reticulated natural gas distribution network.

In January, the regulator gave itself an extra two months to consider the proposed purchase, following submissions claiming the move would create a "virtual monopoly" in gas metering in Auckland.

The $63 million transaction was announced last October and attracted opposition from two groups.

Southern Cross Healthcare and Auckland gas industry consultancy Energy Select argued Vector's application underplayed or mis-stated how difficult it would be for competitors to establish competitive gas meter service provision.

"Replacement of existing assets is already almost non-existent and allowing one participant to have 76 per cent of the market (nationwide) can only further lessen competition," said Shaun Hayward, from Energy Select, said in a submission.

Having completed its extended assessment, the Commerce Commission had found "there was likely to be no substantial difference in competition as a result of the acquisition", Berry said.

However, the Commission was concerned that there was limited competition in the delivery of gas metering services, Berry said.

He said the Commission would consider whether it should undertake an inquiry into gas metering services under Part 4 of the Commerce Act which allows the Commission to recommend to the Minister of Commerce that specific goods or services become regulated.

The Commission could only make that recommendation after conducting an inquiry, looking at whether the benefits of regulation would exceed the costs, and if so, what the best way was to regulate the goods or services.

Vector is buying 128,000 gas meters located at residential, commercial and industrial premises. It has been trialling smart gas metering technology and hopes to retro-fit the technology on the acquired fleet of gas meters, he said.

Contact must refinance some $700 million of debt falling due over the next 18 months.

Vector shares last traded at $2.81 and have gained 3.3 per cent this year. Contact was last at $5.35 and is up 2.9 per cent this year.

- with BusinessDesk

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