CommComm price controls likely to hurt NZ energy industry

THE New Zealand Commerce Commission’s moves to impose direct price control on gas distribution services by Powerco and Vector along the lines of the regulation of electricity lines businesses is likely to start industry regulation in New Zealand on the road to a high-cost regulatory environment for all concerned. By BRYAN GUNDERSEN, Partner, Kensington Swan Lawyers

The Commerce Commission decided to impose control over Powerco and Vector’s line function and metering services after both failed to comply with the Commission’s order to drop prices by 9% and 9.5% respectively.

The Commerce Act 1986 grants the Commission the power to impose price control in circumstances of restricted competition so that goods or services can only be supplied in accordance with the authorised price.

The decision to take control of Powerco and Vector follows similar recent decisions by the Commission to take control of national grid electricity owner Transpower and electricity lines business Unison.

Both Vector and Powerco have expressed concerns with the overall timeframe allowed in the process for determining final authorisations.

If the existing threshold regime for electricity lines businesses along with a new regime for the gas industry and price control for Powerco and Vector does not result in noticeably reduced prices to consumers, this would suggest prices to consumers are being maintained by a lack of competition between retailers.

Subsequently, the Government would have little choice but to regulate the retailers in the so-called competitive retail markets. Otherwise everything done so far will be for nought.

Rather than starting down the slippery slope of regulation, the Government should focus on determining where the real super-profits are occurring. Are they really occurring in the asset intensive networks where investment is critical, or in the paper intensive retail markets?

Perhaps it would be more effective to examine ways to improve competition in the retail markets by means other than price control on networks which is high cost and is a disincentive to investment.

The Commerce Commission’s final determination for the authorisation of the supply of gas distribution services by Vector and Powerco due to be published by September 1.

The full version of the Commerce Commission media release and associated material is available at: http://www.comcom.govt.nz/RegulatoryControl/GasPipelines/controlofpowercoandvectorgaspipeli.aspx

Kensington Swan are experts in competition and regulatory matters and can provide advice on all aspects of the Commerce Commission process and implications of the Commerce Act. If you require assistance in this field please contact us.

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