Media Release
Issued 28 February 2013
Release No. 63
Commerce Commission Sets Prices And Quality Standards For Gas Pipeline Services
The Commerce Commission has released its final decision on the first default price-quality paths for gas pipeline
services.
These paths set the maximum prices and minimum standard of quality that gas pipeline businesses must comply with from 1
July this year. The affected businesses and their respective price adjustments are set out below. An estimate of the
potential effect on residential customers’ gas bills is attached.
The overall price adjustments from 1 July 2013 are: a 2.0% increase for GasNet (distribution), a 4.0% increase for
Powerco (distribution), an 18% reduction for Vector Limited (distribution), a 1.2% reduction for Maui Development
Limited (transmission), and a 29.5% reduction for Vector Limited (transmission).
The Commission has limited future price increases to no more than the rate of inflation from 2014 through to 2017.
Commerce Commission Deputy Chair Sue Begg said that in setting the price-quality paths, the Commission has aimed to
achieve an appropriate balance between providing incentives for suppliers to invest in their infrastructure services,
and ensuring that customers are charged prices that are better aligned with the cost of the services they receive.
“This is the first time that some of these businesses have been subject to price and quality regulation. We are bringing
the prices these businesses can charge their customers more into line with the costs of providing those services,” said
Ms Begg.
“Although substantial price reductions are necessary for Vector, we do not expect this to limit its ability to maintain
and invest in its network. The default paths provide for increases in investment of up to 20% above what a business has
spent historically,” she said.
Ms Begg said the gas pipeline companies could apply to the Commission for a customised pricequality path if the default
price-quality paths did not meet their individual circumstances. “We’d expect that companies with a default
price-quality path that didn’t meet their need for investment would come to the Commission for a customised price path
as provided for by the legislation.”
Ms Begg noted that the input methodologies, which influence the default price-quality paths, are currently under
challenge in the High Court. The outcome of this challenge could affect the price adjustments provided by the default
price-quality paths.
The decision on the default price-quality paths for gas pipeline services can be found at: http://www.comcom.govt.nz/initial-default-price-quality-path/
Background
What are price-quality paths?
Price-quality paths are a form of regulation applied to certain businesses that are regulated under Part 4 of the
Commerce Act. They are intended to influence the behaviour of those businesses by setting the maximum average price or
total allowable revenue that the businesses can charge.
They also set standards for the quality of services that each business must meet. This ensures that businesses do not
have incentives to reduce quality to maximise profits under their price-quality path. For gas pipeline services, there
are two types of price-quality paths that suppliers can have. All businesses start off on a ‘default’ path which is
generic in nature to provide a low cost form of regulation. If the default path does not suit their particular
circumstances however, a business can apply for a ‘customised’ price-quality path. Customised price-quality paths use
more business specific information, and rely on more in-depth audit, verification, and evaluation processes. What’s the
difference between transmission and distribution?
Gas transmission services transport gas to large users of natural gas such as big industrial plants, electricity
generators and the gas distribution businesses. Gas distribution services transport gas to smaller users (including
domestic consumers) from the gas transmission pipelines.
What are input methodologies?
Input methodologies are the upfront rules and processes of regulation set by the Commission which underpin Part 4
regulation in the Commerce Act. For example, input methodologies concern things such as the valuation of assets, the
treatment of taxation, the allocation of costs, and the cost of capital.
To set price-quality paths (or any other form of Part 4 regulation), we are required to apply input methodologies where
relevant. We first published input methodologies for gas pipeline businesses in December 2010. Since then we have
re-determined these input methodologies in September 2012 to specify the existing methodologies for asset valuation,
tax, and cost allocation as also applicable to default price-quality paths. We also made minor amendments to the input
methodologies in February 2013.
For more information on input methodologies, including our reasons, visit http://www.comcom.govt.nz/input-methodologies-2/.
How have prices and quality been regulated previously?
These final default price-quality paths mark the first time that gas pipeline businesses have been subject to
price-quality regulation under the Commerce Act (Part 4).
For Maui Development Limited and GasNet, it will be the first time they have been subject to any regulatory controls on
their prices or quality. Powerco and Vector (certain services only) have been previously regulated under the 2008 Gas
Authorisations. These Authorisations were the result of the 2004 Gas Control Inquiry and expired in July 2012.
For more information on the Gas Authorisations visit: http://www.comcom.govt.nz/vectorpowerco-authorisation/
ENDS