Gas Consumers Could Get Better Access To Company Information

Gas consumers would have better access to quality information if proposals set out in a Ministry of Commerce discussion paper were implemented.

Minister for Enterprise and Commerce Max Bradford said the gas disclosure discussion paper released today would require gas pipeline owners to meet more stringent information disclosure regulations.

"The paper contains proposals designed to tighten disclosure provisions and to improve the quality and comparability of disclosures. Key proposals include: * better accounting definition of the monopoly and contestable parts of gas businesses;

* requiring pipeline owners to adopt a common balance date for disclosure purposes; and

* introducing a mandatory optimised deprival valuation (ODV) methodology.

"Gas companies already use ODV to value their pipelines," Mr Bradford.said.

"But the methodologies are not standardised or transparent. This creates a risk that pipeline owners could over-inflate valuations to hide monopoly profits."

Other proposals in the discussion paper include requiring more detailed information about the reliability performance of gas pipelines.

There is also a proposal to drop the requirement for the Natural Gas Corporation to disclose its wholesale gas contracts, in recognition of advances in wholesale gas competition.

"The discussion paper also asks some key questions about the effectiveness and value of gas sector information disclosure," Mr Bradford said.

The discussion paper is being sent by the Ministry of Commerce to industry participants. It can also be downloaded from the Ministry of Commerce website at http://www.moc.govt.nz. Submissions close on 29 November.

For further information see the attached background sheet or contact: Jeremy Kirk, Press Secretary, (04) 471 9836 025-424-565

Gas Sector Information Disclosure : Background Notes

Overall, gas accounts for 28% of our primary energy (oil 33%, geothermal 15%, hydro 12%, coal 7% and other renewables 5%).

The Gas (Information Disclosure) Regulations 1997 are a key component of the light-handed regulatory regime for the gas industry. They are designed to impose discipline on the performance of gas market activities where behaviour is not constrained by effective competition.

Information disclosure promotes self-regulation by encouraging firms with natural monopoly characteristics to avoid the risk of price control or court proceedings under the Commerce Act. This light-handed regulatory approach has been adopted on the basis that information disclosure in conjunction with competition law and the threat of further regulation is the most cost-effective means of dealing with potential problems stemming from any abuse of market power in the gas industry.

The gas disclosure regulations share many common features with other network industry disclosure regimes, particularly electricity.

Information disclosure is designed to help identify whether gas utilities with market dominance are : 1 pricing inefficiently - ie earning excessive profits and/or recovering excessive costs (monopoly pricing); and/or

* engaging in anti-competitive conduct, by

* failing to provide cost-based access to their natural monopoly services; and/or

* using their non-contestable services to subsidise their contestable activities; and/or

* providing an inadequate service quality eg a reliable and secure supply of gas.

With reliable information on these issues, the ability of retail competitors, consumer groups and other interested parties to take court action or lodge complaints with the Commerce Commission (in the case of anti-competitive practices), or negotiate with the companies or approach the Commission (in the case of monopoly pricing) is improved.

Information disclosure is not the only tool at the Government's disposal in addressing possible monopoly problems. The responses available to Government under the current light-handed regulatory regime include a price control inquiry under section 54 of the Commerce Act 1986. Actual price control under Part IV of the Act can be imposed if competition is limited in the relevant market, and if price control is in the interests of consumers.

Information disclosure is currently applied by regulation to dominant providers in the airport, electricity line, gas, postal and telecommunications industries. The broad principles of disclosure apply equally to each of these industries, but each set of regulations has many unique features.

If the amendments proposed in the gas disclosure discussion paper go ahead, the earliest they could apply would be to disclosures for the 2000/01 financial year.