Minister of Energy Pete Hodgson has called for submissions on the Commerce Commission’s recommendations. We welcome Mr Hodgson’s call as an indication the Government is taking a balanced approach to its review of the gas industry.

“The important thing to remember is that unlike electricity, gas is a discretionary energy option. This is an energy source that competes with electricity, wood, coal and LPG.”

“Another key point is that even if the Government chooses to go with the Commerce Commission’s recommendations, there is no guarantee that any reduction in gas transmission or distribution prices will be passed through to customers by gas retailers”
Mr Boulton said that it remains a surprise that the Commission considers that the pipelines are a monopoly.

“Gas is a discretionary fuel, which presently reaches only 13% of energy consumers and only uses 2-3% of the gas consumed each year in New Zealand. This penetration rate is very low when compared to the southern states in Australia where penetration rates of 80-90% are achieved.”

“What needs to be realised is that the reticulated gas market in New Zealand is very small with low customer densities and very low average consumptions, making scale efficiencies very difficult to achieve,” he said.

An independent report by the Sustainable Energy Authority of Victoria identified that average gas consumption per consumer of more than four times that in New Zealand was required for new gas reticulation to be economic. So we have a number of authorities disagreeing, with each providing different analysis.

Mr Boulton urged the Government to respond to the recommendation with caution because the future of the gas industry was at risk.

“We believe the Government has prudently called for additional submissions to ensure that all information is being considered. We remain hopeful that the Government will consider these submissions within the broader context of the Gas Policy Statement”

“New Zealand does not have the consumer base to support an expensive regulatory system, particularly with gas. Price controls are incredibly hard to get right, the short term benefits are small, whereas the costs of getting it wrong will put the whole industry and future investment at future risk,” he said.

“New Zealand is virtually a Greenfield site, needing substantial gas pipeline investment to offer all new Zealanders an option of electricity and gas. This has been recognised overseas already with Governments providing capital contributions to pipeline owners, or as a minimum, a 15-year regulatory free window to encourage pipeline companies to put their dollars in the ground with new pipes – we are going the opposite way in our home country,” said Mr Boulton.
Mr Boulton said the Government should support a regulatory system that encouraged investment in gas pipes so reticulation was expanded and consumers provided with more choice.

“More investment is required to cater for emerging technology such as fuel cells in homes that have the potential to ease the strain on electricity networks and lessen the need for expensive transmission upgrades.”

New Zealand was running against an international trend that was increasingly moving away from price controls.

“Australia's Productivity Commission had recently recommended moving away from expensive price controls to monitory systems, much like the information disclosure regimes that we already have in New Zealand. In the UK Ofgem's latest proposals for electricity controls focus firmly on capital investment and delivering improved customer service NOT reduction in costs/prices.

More informed public debate is required on the level and direction of economic regulation in New Zealand before we travel down an irreversible path that will damage the economy.