Big three gas firms stand to lose collective $20m a year

Pete Hodgson

New Zealand's three big gas network companies may lose a collective $20 million a year in earnings if the Government accepts this week they should be price controlled.

The Commerce Commission was expected to have delivered its gas inquiry report yesterday to Minister of Energy Pete Hodgson, the DominionPost reported today.

The report looks at whether gas network companies should be regulated, the newspaper reported.

A spokesman for Mr Hodgson said he was likely to respond this week.

If the commission recommends regulation and the Government accepts it, it will be the first gas industry price control since 1992.

Industry observers expect the commission to stick with its draft recommendation in May that the gas network businesses of NGC Holdings, Powerco, Vector and Maui Development should be subject to some form of regulation.

In its draft report, the commission estimated the net benefit to buyers (gas retailers) of price controls on gas transmission and distribution networks was nearly $20m a year.

NGC, with its North Island high pressure gas transmission pipeline and several regional gas distribution networks, might lose earnings of $8m a year, Vector $5.7m and Powerco almost $5m.

Industry players expect Mr Hodgson to seek further comments from the industry on regulation.

Powerco chief executive Steven Boulton said he was confident there would be a further opportunity for gas network companies to have input on any form of regulation.

There were controls on gas network charges in Australia, but consumers used more gas than in New Zealand.

There are about 1.7 million electricity consumers in New Zealand and 220,000 gas consumers.

Mr Boulton said benefits to gas retailers from regulation might not necessarily be passed on to consumers.

Todd Energy is part owner of the Maui pipeline, which the commission said in May should face some regulation.

Todd Energy chief executive Richard Tweedie said the Government had regulated electricity network businesses because they were monopolies.

"I think it's pretty hard to say it shouldn't happen with monopoly gas businesses," Mr Tweedie said.

The case for price control has been building for several years.

In July 2002, Covec, an Auckland consultancy, concluded in a report for the Economic Development Ministry that the net benefit to buyers of gas transmission and distribution services from a price-cap regime would be about $22m a year.

Simon Terry Associates, in 2001, concluded the gas network companies' monopoly profits were about $60m a year.

- NZPA