Regulator proposes gas distribution revenue cap of up to $42M a year for pipeline companies

Friday 10th February 2017

The Commerce Commission is proposing to cap regulated sales for gas pipeline firms, including NZX-listed Vector, which it estimates will lower their maximum revenue by 18 percent a year.

In a draft decision, the regulator today set out the default price-quality path for GasNet, Powerco, Vector and First Gas starting from Oct. 1 and spanning the next five years. The commission wants to reduce the gas pipeline businesses' maximum revenue by $42 million a year, due largely to a lower cost of capital for the firms. It also proposes limiting future price increases to no more than the rate of inflation for the four years from 2018.

"They have been primarily driven by the fall in the cost of capital and as such would have been anticipated by the affected businesses," deputy commission Sue Begg said in a statement. "Additionally, we have adjusted our approach to how we set expenditure allowances for each gas pipeline business to more clearly take into account their own expenditure forecasts."

The Commerce Commission regulates what gas distribution and transmission firms can charge, and will make a final decision by May 31.

The changes would lower Vector's revenue cap by 23 percent or $43 million over five years, Powerco's by 16 percent or $45 million and GasNet's by 13 percent or $4.1 million.

First Gas, which bought Vector's gas distribution and transmission businesses outside Auckland, would see a 26 percent reduction in its revenue cap from distribution, which covers smaller consumers, or $20 million over five years, and a 16 percent fall from its transmission for large industrial gas users, or $113 million.

Vector shares were unchanged at $3.29, while Powerco's $50 million of NZX-listed bonds paying a coupon of 6.74 percent and maturing in September last traded at a yield of 3 percent.

The regulator said the draft decision didn't include the spending First Gas projected it would need to secure the transmission pipeline at White Cliffs in Taranaki, which would need a customised price-path.

The commission estimates its decision will cut consumer gas bills by 8 percent in 2017/18, although commercial users would be affected differently. Consumer gas prices rose at an average annual pace of 1.2 percent from Dec. 31, 2011, to Dec. 31, 2016, outpacing the 1 percent average annual increase in the consumers price index over the same period.

BusinessDesk.co.nz

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