Commission will not undertake gas metering inquiry

Commission will not undertake gas metering inquiry

The Commerce Commission has decided against initiating an inquiry into whether gas metering services should be regulated at this time.

During the assessment and clearance of Vector’s application to acquire Contact Energy’s natural gas metering business in 2013, the Commission identified a lack of competition in the North Island gas metering services market. Vector and Powerco currently control about 96 percent of the market.

The Commission has now completed a preliminary assessment of whether to conduct an inquiry under Part 4 of the Commerce Act to determine whether it should recommend regulation of these services.

Deputy chair Sue Begg said while the Commission remained concerned about the level of competition in the market for the supply of gas metering services, the likelihood of the benefits of regulation materially outweighing the costs is not sufficient to justify an inquiry at this time.

“Our initial findings suggest the benefits of regulation would be modest for consumers – possibly saving between 63 cents to one dollar on a monthly bill. Our indicative analysis does not yield sufficiently high benefits when balancing against the cost of an inquiry and any subsequent regulation.

However, our remaining concerns about the scope Vector and Powerco have to raise their prices mean that we will continue to pay attention to the pricing of gas metering services in future, as we do with pricing in any infrastructure sector where competition concerns have been identified.”

A copy of the preliminary assessment can be found on the Commission’s website.

Background

Why has a preliminary assessment been undertaken?
In late 2012, Vector applied for a clearance to acquire the assets and business of Contact Energy’s natural gas metering business. Vector and Contact both provided gas meters, and related services, and these gas meters are connected to the North Island’s natural gas distribution network. We found that there was limited competition in the gas metering market. However, a clearance was granted on 26 April 2013 as we found that the merger would likely make no difference to the level of competition in the market. The Commission noted at that time it would consider whether a Part 4 inquiry was required.

What does a Part 4 inquiry involve?
A Part 4 inquiry can be triggered by the Minister of Commerce or on the Commission’s own initiative. The purpose of the inquiry is to assess whether or not regulation under Part 4 should be imposed in relation to specified goods or services, and to then make a recommendation to the Minister who will make the final decision.

Section 52G of the Commerce Act sets out the tests that must be met before goods or services can be regulated. Goods or services can only be regulated under Part 4 if:
a) the goods or services are supplied in a market where there is both
i. little or no competition; and
ii. little or no likelihood of a substantial increase in competition; and
b) there is scope for the exercise of substantial market power in relation to the goods or services, taking into account the effectiveness of existing regulation or arrangements (including ownership arrangements); and
c) the benefits of regulating the goods or services in meeting the purpose of this Part materially exceed the costs of regulation.

Has the Commission ruled out undertaking an inquiry in the future?
No. While we consider that the net benefits are not sufficiently material at this stage to undertake a Part 4 inquiry, this may change in future. For this reason, the Commission will continue to pay attention to the pricing of gas metering services, as we do with pricing in any infrastructure sector where competition concerns have been identified.

ENDS

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