2003 Gas Pipeline Inquiry

The Commerce Commission commenced its inquiry into gas pipelines services in April 2003 following a request from the Minister of Energy under the regulatory control provisions of the Commerce Act.

The Minister requested the Commerce Commission to make recommendations on whether or not supply of gas pipeline (transmission and distribution) services should be controlled. The Minister has requested the Commission to complete the inquiry by 29 November 2004.

Under the Commerce Act, the Commission is required to consider two issues to determine whether control may be imposed:

• whether competition in the supply of gas pipeline services is limited or likely to be lessened; and
• whether control is necessary or desirable in the interests of acquirers or suppliers of gas pipeline services.

Having determined whether control 'may' be imposed, the Commission was then asked to consider additional matters to determine whether control 'should' be imposed. The additional matters include:

• the efficiency costs of achieving reductions in excess returns;
• the magnitude of the benefit of acquirers; and
• the impact of a recommendation not to control.

A copy of the Commission's final report, including an Executive Summary, is available on the Ministry of Economic Development's website http://www.med.govt.nz/ers/gas/control-inquiry/

This is the Commission's second control inquiry. The Minister of Commerce requested that the Commission report on whether the supply of airfield activities at Auckland, Wellington and Christchurch International Airports should be controlled. The Commission's completed that inquiry and reported to the Minister of Commerce in August 2002.

Statutory framework

The Commerce Act 1986 (Act) envisages the possibility that control may be introduced over goods and services as part of the statutory framework to promote competition in markets within New Zealand. The relevant provisions are found in Part IV of the Act.

The process for the introduction of control requires the Governor-General to declare, by an Order in Council, that specified goods and services shall be controlled. The Governor-General may only do so on the recommendation of the Minister of Commerce.

The Minister of Commerce may only make a recommendation for control if satisfied the goods or services are supplied or acquired in a market in which competition is limited or likely to be lessened, and it is necessary or desirable that goods or services be controlled in the interests of acquirers or suppliers.

For the purpose of the gas pipelines inquiry, the Minister of Energy can, pursuant to s13 of the Ministry of Energy (Abolition) Act 1989, exercise and perform the powers and duties conferred on the Minister of Commerce under sections 53, 54 and 56 of the Act with respect to the prices of specified classes of goods and services.

The Act allows the Minister of Commerce (the Minister of Energy in this case) to request the Commission to report on whether control should be recommended to the Governor-General. The Minister of Energy has, by letter dated 30 April 2003, requested the Commission to do this by 1 November 2004.

In making its recommendations to the Minister of Energy, the Commission needed to address, as required by the relevant provisions of the Act, whether:

• competition in the supply of gas services is limited or likely to be lessened; and 
• control is necessary or desirable in the interests of acquirers or suppliers of gas services.

Terms of reference

The Minister of Energy asked the Commission in reaching its view on whether control should be introduced for specific advice on:

• whether gas services may be controlled in terms of section 52 of the Act; 
• the methodology that the Commission considers appropriate for valuation of pipeline assets for the purposes of its advice on the matters covered in the Minister of Energy's letter; 
• the net benefits to the public of control; and 
• any other matter that the Commission may think relevant to a decision on whether control should be introduced.

Should the Commission recommend gas services be controlled, the Minister of Energy has also requested specific advice on the technical provisions relating to declaration of control as set out in section 57A of the Act.

The goods or services specified by the Minister of Energy are those supplied by persons in markets directly related to either a natural gas transmission system or a natural gas distribution system or both ('gas services'). For the avoidance of doubt, the Minister of Energy has noted in the terms of reference that 'bypass' pipelines and pipelines owned by Maui Development Limited are to be included in the inquiry.

Terms of reference comprise:
1. Terms of Reference letter from Minister of Energy, 30 April 2003
2. Letter to Minister of Energy seeking clarification, 26 June 2003
3. Response from Minister of Energy, 9 July 2003

Other points to note

For the avoidance of doubt, the Commission's role in relation to gas services is different to that related to electricity lines businesses:

• in the case of gas services (Part IV of the Act), the Governor-General, on the recommendation of the Minister of Energy, would, if required, be responsible for declaring control. The Commission's role is to make recommendations to the Minister of Energy on whether or not control is necessary or desirable; and
• in the case of electricity lines businesses (Part 4A), the Commission can itself, if required and subject to the relevant statutory provisions, declare control of electricity lines businesses.