Natural gas pipeline reliability maintained, profits not excessive, analysis shows
Published15 Dec 2021
Profits per customer declined for regulated gas pipeline businesses over the seven years to 2020, according to analysis by the Commerce Commission.
As detailed in a new Commission report, Trends in gas pipeline business performance, the average profit per customer for local gas pipeline businesses was $111 in 2020, $79 less than the average profit per customer in 2014.
The Commission sets a revenue cap for gas pipeline businesses and minimum quality standards they must meet under Part 4 of the Commerce Act, which has the long-term interests of consumers at its heart.
Deputy Chair Sue Begg said: “The regulatory settings are designed to prevent gas pipeline businesses from using their monopoly power to extract excessive profits. At the same time, the settings provide incentives for businesses to invest in maintaining and improving their networks to ensure reliable gas supply.
“The reduction in profits per customer was a result of the lower rate of return that gas pipeline businesses were allowed to earn when we last set gas price-quality paths in 2017. Our analysis shows that gas pipeline businesses have not made excessive profits over the last seven years.”
The four local gas pipeline businesses – Vector, Powerco, First Gas and GasNet – transport natural gas to commercial and industrial users as well as residential consumers. First Gas also runs the country’s only gas transmission business, providing gas to large users such as big industrial plants and electricity generators as well as the local gas pipeline businesses.
Ms Begg said that the analysis shows that the decline in profits per customer had not affected capital expenditure by local gas pipelines businesses, which was 21% higher in 2020 than 2016. Capital expenditure in gas transmission pipelines was up 61% over the same period.
“It’s necessary for performance and reliability that infrastructure businesses continue to invest efficiently in the service they provide,” Ms Begg said. “Capital expenditure has increased across the gas pipeline businesses since the last reset, and over the same period the average number and duration of outages experienced by customers has reduced.”
The only outlier to the trend of improved performance was GasNet, which experienced significant interruptions to consumer supply related to water leaks affecting the gas pipelines in 2018 and 2020.
The Trends in gas pipeline business performance report can be found on the Commission’s website along with a factsheet with further key take outs from the analysis. The Commission’s analysis is based on information that gas pipeline businesses are required to publish under information disclosure regulation. It looks at historical figures and does not predict future trends. The website also contains an interactive dashboard so interested parties can conduct their own analysis of the data.
The analysis comes as the Commission consults with gas pipeline businesses and interested stakeholders to set a new default price-quality path in May 2022, to apply from 1 October 2022.
Ms Begg said the reset of price-quality paths comes at a time of uncertainty around the future of natural gas use ahead of the release of the Government’s Emissions Reduction Plan, also scheduled to be released in May.
“In the context of climate change and the Government’s commitment to 100% renewable electricity by 2030 and net zero emissions by 2050, the switch to alternative fuel sources and the adoption of new technologies and business models is likely to reduce demand for natural gas,” she said.