NZ regulator orders pipeline industry to cut investment

NEW ZEALAND pipeline companies have been authorised by the energy regulator to increase their prices but have been ordered to cut capital investment into infrastructure.
NZ regulator orders pipeline industry to cut investment NZ regulator orders pipeline industry to cut investment NZ regulator orders pipeline industry to cut investment NZ regulator orders pipeline industry to cut investment NZ regulator orders pipeline industry to cut investment

Paul Hunt

Senior Journalist: Energy & Commodities

Paul Hunt

 

There are four gas distributors in New Zealand - GasNet, PowerCo, Vector, and First Gas. First Gas is the only pipeline transmission business.

The Commerce Commission limits the maximum revenue a pipeline company can earn. Since the government committed to Net Zero, it also now has the power to limit the level of capital expenditure and investments pipeline companies can spend.

On Tuesday, the regulator announced it would raise the limit of revenue companies can reap substantially to ensure pipelines remained competitive amid the global energy crisis and to secure future investment in the sector.

It will see a 3.8% increase to gas bills for at least 300,000 consumers in the North Island.

The majority are residential users, alongside a smaller number of commercial and industrial users.

"Our decision balances price rises for gas users with the need for gas pipeline businesses to continue to invest appropriately to maintain safe and reliable supply while there is still demand for natural gas," associate commissioner Vhari McWha said.

"Gas remains an important transitional fuel and essential for many homes and businesses, so investment will be required to ensure the network continues to provide safe and reliable supply of natural gas."

The commission noted the government had a commitment to reach net zero by 2050 and reduce emissions by 30% over the next nine years.

New Zealand's oil and gas regulator has only just begun working on the nation's Gas Transition Plan which aims to replace domestically produced natural gas with hydrogen.

The entire plan was supposed to be published last year, meaning the government is some five years behind schedule.

The commission said the remaining life of natural gas pipelines was "likely to be shorter than previously expected," due to the government's commitments.

It has decided to limit capital expenditure on new pipelines as a result. This, it said would ensure industry would "prudently" prioritise their investment decisions in line with net zero.

FirstGas had planned to spend NZ$213 million over the next four years. It has had this limited to $189 million. Vector planned to spend $36 million and has had this reduced to $23 million. PowerCo expected capex of $73 million but the commission has reduced this to $67 million.

The commission also noted that gas pipeline owners may not recover their investments, meaning the government's emissions reduction targets could cost industry.

It will review regulations on pipeline companies every four years, instead of every five.

"This allows us to consider further developments when we review the requirements for gas pipelines in 2026, including the impact of further government announcements and the Gas Transition Plan, changes in technology and consumer preferences for energy sources," McWha said.