Gas firms rail at price controls

Gas pipeline companies have fired their first shots in their war against price regulation, urging new Energy Minister Trevor Mallard to reject Commerce Commission claims of monopoly price gouging.

Mallard is pondering commission research that last year said Vector and Powerco had earned tens of millions of dollars by abusing their monopolies.

It estimates that Vector would reap monopoly profits of $76.9 million from its gas pipes between 1997 and 2008, and Powerco would gain just over $50 million.

The commission said that if direct controls were imposed on Vector, there would be a public benefit of $6.9 million a year. For Powerco, the figure would be $3.7 million.

Submissions from 16 companies and groups to the minister have now been released, and they include strong pleas from Vector and Powerco for the minister to reject any price controls.

"In our view, there is no case for control," says Vector. The recently established gas industry regulatory regime, run by the new Gas Industry Company, would do the same thing, but more cheaply.

It said there was no evidence of any actual concern about the prices. Neither the Consumers' Institute nor Greypower (described as "respected and vocal consumer voices") took part in the commission's inquiry.

Crucial to Vector's case is the claim that there is already stiff competition in the gas supply business.

"The day-to-day reality for our gas business is competition with other energy options, particularly LPG," the submission says.

"Only about 25 per cent of customers that could connect to Vector's gas network choose to do so, underscoring the discretionary nature of gas and the range of other energy options available to consumers."

The market for bottled LPG was growing quickly and posed a significant competitive threat.

There was also the risk that regulation would suppress vital investment in new infrastructure.

Merchant bankers and stockbrokers ABN Amro also said there was no need for new price controls.

Any decision by the minister would have "significant implications" for the infrastructure investment community, said research head James Miller.

Regulating any gas pipeline company would likely adversely impact on infrastructure development in New Zealand, for regulated companies and potential new investors.

ABN Amro is organising the initial public offering (IPO) and sharemarket listing of the trust-owned Vector. This is expected to raise up to $500 million and is set to happen before the end of this year.

Contact Energy, one of New Zealand's biggest gas retailers and also a big user of gas in its power stations, supports the plan for regulating gas pipelines in the same way powerlines companies are controlled.

It has told Mallard that it appeared "that some pipeline companies are earning returns that are inconsistent with efficient operations".

Who made submissions

Contact Energy, Orion NZ, Wanganui Gas, Powerco, NGC, Mighty River Power, Vector, Todd Energy, Maui Development, Pacific Economics, Business Roundtable, Petroleum Exploration and Production Association, ABN Amro, Telecom and Nick Hylton.