Genesis pledges to pass on cash

State-owned Genesis Energy has promised to pass on any benefits from Government-imposed price controls on gas distributors.

It is the first big gas retailer to make its position clear on who should benefit from the proposals, put forward by the Commerce Commission.

Its main rivals, Mercury Energy and Contact, have said nothing.

The commission said on Thursday that Vector and Powerco had been abusing their monopoly positions to earn excess profits of millions of dollars a year and called on the Government to regulate.

Genesis' pledge is the second time this week it has taken advantage of the fall-out from the plan for price controls. Late on Wednesday evening, aware attention the following day would be focused on Vector and Powerco, Genesis said it would lift its residential gas prices by 14.4 per cent.

Genesis blamed increases partly on distribution charges, but later "clarified" this, saying there had been no rise in prices charged by Vector.

Yesterday's pledge serves to divert attention once again from the price hike. Market reaction to the proposed price control was muted, but neither Vector nor Powerco is listed on the Stock Exchange.

Chris Stone, a director of investment bank McDouall Stuart and an energy sector specialist, said there was a real risk that the commission might get regulation plans wrong - which could lead to under-investment.

Stone said that if excess returns earned by monopolies were less than 10 per cent, "they're frankly not worth chasing".

"The margin of error should be smaller than 10 per cent. There's not sufficient benefit there from the perspective of the user to warrant the risk that you've got your regulation wrong and you do end up suppressing investment." NGC, which will not be price-controlled but is in the process of being taken over by Vector, finished the week with its share price down 1c to $3.12.

Meanwhile, Vector has yet to comment on the Takeovers Panel's rejection last week of its request for exemption from rules that all shareholders in a takeover target be treated equally.

The troubled takeover has run foul of the panel twice already - before offer documents have even been sent to NGC shareholders. 

Monopoly - or not

The Commerce Commission has investigated the natural gas transmission and distribution sector and recommended price controls on Vector and Powerco.

It found that between them, excess profits of $127 million would be reaped over a 10-year period.

The companies say any regulation is unfair and that there is no monopoly since there are other, rival fuels.

Vector says its rate of return on gas assets is better than others because it is efficient, not because it is ripping anyone off.

Gas retailers such as Mercury, Contact and Genesis will be under no obligation to pass on any price cuts, but regulators hope that competition between them means the reductions will flow on.

Some warn that over-regulation will suppress new investment in the industry, leading to a lack of promotion for natural gas and crumbling infrastructure.

Energy Minister Pete Hodgsonwill decide whether to adopt the Commerce Commission's suggestions.