Commission Releases Performance Analysis Of Gas Distribution Businesses

The Commerce Commission has today published information to help consumers and other interested stakeholders understand the performance of the four regulated gas distribution businesses as it prepares to consult on a new price and quality path due to take effect from October 2022.

The information allows consumers to compare the performance of the gas distributors as well as providing an overall snapshot of the sector across a range of measures. It includes revenue and profitability, capital and operating expenditure, asset condition, and network reliability and service.

Commissioner Sue Begg said the analysis is the first of a number of tools and reports for the gas distribution sector that the Commission intends to produce this year as it consults with the industry and interested parties on resetting the default price-quality path for the sector in May 2022 to take effect in October that year.

“This information will provide transparency about whether gas distribution businesses are performing to the level their customers expect of them and will also help parties engage with us as we set the next default price-quality paths for gas businesses,” she said.

The Commission sets price-quality paths for companies that are regulated under Part 4 of the Commerce Act. The five-yearly reset of the price-quality paths sets the maximum revenues and minimum standards of quality that gas distribution businesses must comply with.

More information regarding the overall context for the default price-quality path for the sector is covered in the Commission’s open letter of 29 April 2021.

Ms Begg said this performance information, together with the other information the Commission plans to make available, will also help the Commission, gas pipeline businesses and consumers assess the effectiveness of the default price-quality settings.

“Our experience in other sectors we regulate like electricity and telecommunications shows that making performance information of this type available to consumers and throughout the sector ultimately flows through to better outcomes and is a key component of our regulatory toolbox,” Ms Begg said.

The additional performance information the Commission plans to publish later this year includes analysis of what has been driving changes in price since 2013 and a review of how and why price and quality outcomes in the sector have differed from the forecasts used when the last two price-quality paths were set.

The performance summaries are based on data the Commission has collected from the five pipeline companies under information disclosure regulation since 2010 and is backed by a publicly available database.

The Commission published similar performance information for regulated local electricity lines companies on 21 March 2021.

Background on gas pipelines default price quality paths

The Commerce Commission sets default price-quality paths (DPP) for all gas pipelines businesses in New Zealand as part of regulation under Part 4 of the Commerce Act.

They are intended to influence the behaviour of these businesses by setting the maximum average price or total allowable revenue that they can charge. They also set standards for the quality of services that each business must meet.

The main components of a default price-quality path (DPP) are:
• the maximum prices/revenues that are allowed at the start of the regulatory period (i.e. starting prices)
• the annual rate at which all gas distribution and transmission businesses' maximum allowed prices can increase (i.e. rate of change) – this is expressed in the form of 'CPI-X', meaning prices are restricted from increasing each year by more than the rate of inflation less a certain number of percentage points (termed an 'X-factor')
• the minimum service quality standards that must be met.

We are required to determine a new price quality path for gas pipeline businesses by the end of May 2022. The new DPP will be in effect from 1 October 2022 and will expire on 30 September 2027. The current DPP took effect on 1 October 2017 and expires on 30 September 2022.

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