The need to maintain the safe and reliable supply of natural gas while there is still demand from gas users is behind a phased increase in gas pipeline charges, the Commerce Commission announced today.
Under Part 4 of the Commerce Act, the Commission limits the maximum revenue that gas pipeline businesses can earn and sets the minimum quality standards the businesses must meet. Today’s announcement on the default price-quality path follows a draft decision released by the Commission in February, with the new requirements to take effect from 1 October 2022.
Associate Commissioner, Vhari McWha, says decisions about gas pipeline infrastructure must be viewed in the context of New Zealand’s pursuit of net-zero greenhouse gas emissions by 2050.
“Our decision balances price rises for gas users with the need for gas pipeline businesses to continue to invest appropriately to maintain safe and reliable supply while there is still demand for natural gas.
“Demand for natural gas is expected to decline in the long term. In setting the default price-path we have considered a range of future scenarios for the sector – including the risk of whole or partial closure of the gas network – alongside the impact on households and other users of natural gas.
“The final default price-path we have announced today reflects that the remaining life of the natural gas pipelines in New Zealand is likely to be shorter than previously expected. However, natural gas remains an important transitional fuel and essential for many homes and businesses, so investment will be required to ensure the network continues to provide safe and reliable supply of natural gas over this horizon,” Ms McWha says.
“At the same time, we have limited capital expenditure allowances to ensure that suppliers continue to act prudently and prioritise their investment decisions. We also recognise that price increases directly impact gas users, and for this reason the changes are being phased-in over time.”
Ms McWha says the Commission’s decision does not provide a guarantee that gas pipeline businesses will recover the full value of their investments. The Commission is retaining the existing quality standards which relate to outages on the network and response times to emergencies.
There are currently around 300,000 individual connections to the regulated natural gas networks in Te Ika a Maui, the North Island. The majority are residential users, alongside a smaller number of commercial and industrial users. There are also some high-volume industrial users that take natural gas directly from transmission networks.
Ms McWha says the impact of the price changes on household gas bills would be an increase of about 3.8% per annum, on average across all household consumers, in each of the next four years. For a typical annual household gas bill of about $1,246, this would be an increase of around $48 per year and cumulatively about $190 over the next four years.
These figures do not include the impact of changes in other components of consumer gas bills, such as charges related to the price of wholesale gas. The impact on individual households, as well as commercial and major industrial users, will depend on their particular circumstances and arrangement with their natural gas supplier.
The Commission reduced the size of the proposed price increases following submissions from stakeholders on its draft report published in February. Averaged across all households, the price increase is now around $7 less per year for a typical household.
The Government’s recently released Emissions Reduction Plan suggests that the transition towards net-zero emissions involves an increasingly significant role for renewable electricity, a managed phase-out of fossil fuels like natural gas, and a potential future role for biogas and green hydrogen. The Government will develop a Gas Transition Plan that sets out a transition pathway for the fossil fuel industry, explores opportunities for renewable gas and ensures an equitable transition.
The Emissions Reduction Plan also acknowledges the need to ensure energy is accessible, affordable, secure, and supports economic development.
The requirements for gas pipelines will be reviewed in four years, instead of the normal five. Four years is the shortest period the Commission is allowed to set under the Commerce Act.
“This allows us to consider further developments when we review the requirements for gas pipelines in 2026, including the impact of further government announcements and the Gas Transition Plan, changes in technology and consumer preferences for energy sources.
“We are also consulting with the energy sector on the review of the rules and processes that underpin our regulatory settings. Our decisions in that review, due next year, will also impact the next reset for gas pipeline businesses in four years’ time.”
The final decision is available on the Commission’s website here.
Background
Five gas pipeline businesses are subject to price-quality regulation. First Gas, GasNet, Powerco and Vector are all gas distribution businesses that transport natural gas to commercial and industrial users as well as residential consumers. First Gas also has a gas transmission business that provides gas to large users of natural gas such as big industrial plants, electricity generators and the gas distribution businesses.
The Commission’s statutory functions relate only to piped natural gas. However, where alternative fuels can be blended with natural gas in small amounts so that it essentially remains natural gas, the Commission considers this falls under its statutory mandate and has therefore allowed for some spending on the investigation of using the pipelines for natural gas blended with small amounts of alternative fuels.
The Commission’s website has information on price-quality paths for gas pipelines as part of regulation under Part 4 of the Commerce Act.
