Commerce Commission recommends gas controls

Picture / Derek Flynn

The Commerce Commission has recommended that the gas services of Powerco and Vector be price controlled.

While NGC Transmission, NGC Distribuition, Wanganui Gas, and Maui Development were not recommended for price control, there was a recommendation for some degree of regulatory control.

The commission's final report on gas control was released this morning.

The report was prepared on the request of Energy Minister Pete Hodgson and presented to him earlier this week.

Mr Hodgson told National Radio this morning that more consultation on the report's findings would be needed.

Mr Hodgson said he would consider the report and comments from stakeholders carefully "before making my final recommendations in the middle of next year".

In the report, out this morning, the commission said gas transmission systems had characteristics of natural monopoly, and entry into that market might be possible where there were capacity constraints.

It said there were limited regions - north Taranaki and Huntly, where competition was possible between gas transmission networks.

The distribution network also had natural monopoly features, but there was limited potential for new players to enter the market, the commission found.

"Where there is a bypass network, the commission considers that there is strong evidence of vigorous competition, which has had a major impact on distribution prices," it said.

The commission found that while, in general, "there is workable or effective competition in bypass markets, competition is limited elsewhere".

The commission said benefits of price control in the gas sector included excess returns being reduced, more efficient productivity and allocation of gas, and continued or improved availability of services.

However, likely costs of control included direct costs, which would be in addition to those of the current regulatory regime.

Indirect costs included reductions in service quality, the loss of excess returns, deterred new investment, and productive inefficiencies.

"Control would move towards but would not exactly replicate the competitive price," the report said.

"As a result, only a proportion of the potential allocative efficiency gains would be secured under the control scenario; the rest would be unrecoverable," it said.

Under section 52 of the Commerce Act, the commission found that NGC, Powerco, Vector, Wanganui Gas, and Maui Development met the requirements for the introduction on control.

It made its recommendation under section 53 of that legislation.

The inquiry followed complaints by some customers that gas charges were excessive and operators were abusing their monopoly positions in the market.

Earlier this week, it was reported that the biggest gas transmission firms were poised for battle over the report's recommendations.

The gas firms say this is unfair and the commission is defining the market too widely, since gas is a "discretionary fuel" - that is, chosen as an alternative to other fuels such as electricity.

Transmission pipelines cover long distances, while distribution pipelines are smaller and carry gas to homes and businesses.

- NZPA