Gas price controls in place

A new dawn of Government-imposed price control breaks today for energy network companies Vector and Powerco, as their gas pipelines business come into the embrace of the Commerce Commission.

In its first use of its price control powers, the commission has ordered Vector to drop its average prices from October 1 by 9.5 per cent and Powerco must cut its prices by 9 per cent. This must be lower than the average price charged at June 30.

The impact of price control on Vector shares - now trading on the stock exchange after a $593 million float, is not yet known, since the commission made its statement after the market closed.

Since Vector shares were issued at $2.38 earlier this month, they have soared in value, yesterday gaining another 9c to finish the day at $3.34 each.

From today, control of Vector's and Powerco's gas pipelines business will be taken over by regulators in Wellington. The commission is required to authorise any prices charged by the two companies for moving gas along their local networks of pipes.

Yesterday's move is a provisional price authorisation and the commission will start working on a way of assigning "final authorised prices".

Last year, the commission said abuse of market position meant 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.

Both companies are unhappy with the regulation, saying use of gas in homes and businesses is not compulsory, and that gas competes with other fuels, notably electricity. Legal challenges by them against the regulatory moves failed yesterday in the High Court at Wellington.

Market opinion holds that it is unlikely the details of commission regulation will have a negative effect on the popularity of Vector shares. Some investors like putting their money into regulated businesses.

While not wanting to say exactly how much money consumers would save, the commission has said that an 18.5 per cent saving on prices in the Vector network and 12.2 per cent on the Powerco pipes "could be achieved over time".

Vector chief executive Mark Franklin said this month that the new regulations affected "only an incremental part of one of our small businesses, which is the gas business in Auckland - so it's not a huge deal for us. The issue for me is the principle."

Mercury, the retail brand of the state-owned Mighty River Power, would not say if it would pass on any price cuts, saying it would instead make a decision once the details of any commission move were known.

The country's biggest gas retailer, Genesis, says it will pass on any price cuts imposed by the commission to its 116,000 customers.

A Contact spokesman said the retail gas sector was competitive, so it would expect prices to customers to drop if transmission charges fell.

Australian investment fund Babcock & Brown, as owner of Powerco, said it was difficult to quantify the impact of the Government's decision, but its initial assessment was of a $5.5 million impact on net revenues.

* The Court of Appeal has dismissed an appeal by Unison Networks that tried to stop the commission deciding whether to head down the path of controlling its electricity lines activities.

Unison is the fourth largest powerlines company in New Zealand. Owned by the Hawkes Bay Power Consumers Trust, it is based in Hastings and runs the local powerlines networks in Hawkes Bay, Taupo and Rotorua.

The commission is undertaking a post-breach inquiry of Unison's performance and behaviour after a breach of regulatory thresholds.