First Gas to pay $3.4 million for anti-competitive conduct

22 February 2019

The Wellington High Court has ordered First Gas Limited to pay $3.4 million after it admitted engaging in anti-competitive conduct when acquiring the Bay of Plenty gas distribution assets of GasNet Limited.

Whanganui-based competitor GasNet entered the Bay of Plenty gas reticulation market in late 2015. First Gas entered the same market by purchasing the non-Auckland distribution assets of Vector in April 2016.

Chairman Dr Mark Berry said First Gas adopted a concerted strategy designed to force GasNet to leave the Bay of Plenty in breach of sections 47 and 27 of the Commerce Act. This strategy included taking steps to duplicate pipelines GasNet had laid in new property subdivisions.

“First Gas sent a clear message to its competitor that its Bay of Plenty investment was under threat. GasNet’s shareholder decided its best course of action was to sell the business and agree to a restraint of trade that would prevent it from returning. This resulted in a long-term structural change in the market, removing competition between First Gas and GasNet for new development contracts,” Dr Berry said.

“The penalty handed down by the High Court reflects the seriousness of this conduct and is sufficient to ensure that First Gas will not profit from the acquisition. It is also a reminder to businesses that anti-competitive acquisitions are a priority area for the Commission and if there is any doubt about the competition effects of a merger, they should seek clearance from us first.”

In her judgment released today, Justice Mallon said: “First Gas personnel at a senior level engaged in a concerted effort on a reluctant seller to remove a competitor. First Gas was successful in its effort, and the effect on the market is on-going and is potentially permanent. The conduct has removed existing competition and is likely to have removed future competition in the market for the foreseeable future.”

Justice Mallon noted that the penalty together with the purchase price mean that the assets acquired will not be profitable over their life time. “In the context of a business which is almost entirely regulated, this means First Gas will incur a material loss from the acquisition. The general and specific deterrent objective is therefore met by the penalty.”

First Gas co-operated with the Commission’s investigation and as part of the resolution has agreed not to enforce the restraint of trade against Gas Net.

A copy of the judgment will be available on the Commission’s case register shortly.

Background

North Island transmission and distribution networks
Reticulated natural gas is distributed to residential dwellings and commercial premises in the North Island through a combination of high pressure gas transmission pipelines (transmission network) and lower pressure distribution pipelines (distribution networks). Distribution networks transport and distribute natural gas from the end points on the transmission network to meters at the premises of consumers.

In the North Island, First Gas owns and controls the only transmission network, having taken ownership of Vector Gas Limited’s transmission network on 20 April 2016 and Maui Development Limited’s transmission network on 15 June 2016. It also purchased Vector’s distribution networks in Northland, Waikato, Bay of Plenty, Taupo, Gisborne and Kapiti Coast.

GasNet is owned by Whanganui District Council Holdings Limited, a council-controlled organisation of the Whanganui District Council. GasNet operates the distribution network in Whanganui.

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