Vector faces gas price slash

Some households which rely on gas pipeline services could see their bills reduced by up to 25% under new Commerce Commission price-quality paths.

The commission has released its revised draft decision on the first default price-quality paths for gas pipeline services. The paths would set the maximum prices retailers can charge.

These would take effect from July 1 next year and annual increases would be limited to the rate of inflation for the regulatory period until 2017.

The changes will affect transmission suppliers Vector and Maui Development and distribution businesses Vector, Powerco and Gasnet.

The price adjustments could mean a 25% reduction in Vector’s bill but a 5% increase in Powerco’s.

Commission deputy chairman Sue Begg says this is the first time these businesses have been subject to price-quality regulation.

“We are now bringing the prices these businesses can charge their customers more into line with the costs of providing those services.”

She says even though Vector would have to substantially reduce its prices, it should not limit the company’s ability to invest in or maintain its network.

Where a business expects a significant increase in investment or operating expenditure during the regulatory period compared to what they have spent in the past, then the business is able to apply for a customised price-quality path.

The commission expects to reach a final decision on the default price-quality paths by late February following a period for submissions.

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Households won't see their bills fall by 25%. Only the relatively small portion of the bill that relates to distribution and transmission services MAY reduce, IF retailers pass on the reduction to consumers.

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The real story here lies in the incredibly weak counter-argument by Vector citing "UK regulatory adoption" . If they truly had a handle on their operational costs, assets, and WACC, then they would have no difficulty mounting a strong and compelling rate case argument. The fact that it's bluster and complaint says plenty. The other problem is whether the commission has the intellectual capital to actually analyse and forecast the appropriate rate of return based on forecast opex, capex and reliability indices.

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I should have added, whether ComCom also has the knowledge and skill to ask the right questions as to whether the information the Networks is capturing is in fact accurate. I for one would not be a Director of some of those companies signing the Certifications of Disclosure given the known weaknesses in the underlying data.

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