Consumers set to pay nearly 20% more for gas after ComCom draft ruling

Thursday, 10 February 2022

The price rise would be independent of any increase in the price of gas itself.

Consumers face a 19.3 per cent rise in the price of piped natural gas that would be phased in over four years from October if a draft ruling issued by the Commerce Commission on Thursday is confirmed.

The price rise is solely down to a proposed increase in gas distribution costs and does not include any price increases that may come about as a result of rises in the price of gas itself.

About 300,000 customers receive piped gas in the North Island and would be affected by the decision, the majority of which are households rather than businesses.

The price of piping gas to customers is controlled by regulation and the Commerce Commission has decided pipeline operators should be able to earn higher revenues in the next few years.

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That is because the future of those networks is less certain, in part due to climate change policies, and pipeline owners, including First Gas, may have less time than previously expected to recover the cost of their investments.

Associate commissioner Vhari McWha expected the impact of the draft ruling on household gas bills would be an average 4.5 per cent price rise in consumers’ total gas bills over each of the four years of the new regulatory period.

“For a typical annual household gas bill of about $1275, this would be an increase of around $55 per year,” in each of those four years, the commission said.

“We understand obviously that consumers would prefer that prices didn't rise,” McWha said.

But the commission was trying to balance that against the risk of “much greater price shocks” in future, she said.

The commission said the expected price rise would have come in at about 26 per cent over four years, rather than about 19 per cent, had it not decided to cap the increase to “mitigate consumer price shock”.

The commission is due to finalise its ruling by the end of May.

“It is a draft decision, so we are interested in anyone’s feedback,” McWha said.

The watchdog explained in its draft ruling that it was resetting allowable gas distribution revenues at a time when there was “uncertainty about the role of gas in New Zealand’s pathway towards net-zero carbon emissions”.

“A number of climate change announcements are expected to be made by the Government in the coming years to support this transition,” it said.

“The pathway towards net zero emissions may mean an increasingly significant role for electricity, a decline in natural gas use, and a potential future role for biogas and hydrogen.

The Commerce Commission says the allowable price rises would have been higher, had it not decided to cap them to reduce the impact on consumers.

“In the long-term, natural gas pipelines and networks may need to wind-down or be repurposed to carry alternative low or no carbon gases.”

That meant there was a risk that pipeline owners might be unable to fully recover the costs of their past investments.

Further price increases might be required from October 2026, it said.

McWha said it was also possible that if gas networks were successfully repurposed to carry hydrogen – which could give them an extra lease on life – then regulated distribution costs could come back down again in future.

“But there is not sufficient certainty around that to rely on it,” she said.

First Gas would be the main beneficiary if the draft ruling is confirmed.

First Gas would be allowed to earn $210m from its piped gas network in the year to the end of September 2026, up from just over $131m this year, with an annual increase of 10 per cent over and above the expected inflation rate.

The other companies that would be able to increase their regulated prices are Vector, PowerCo and GasNet.

The commission noted First Gas saw piping hydrogen instead of natural gas as a viable solution to the Government’s net-zero carbon emissions target by 2050.

But it observed First Gas did not see blending hydrogen with biogas or natural gas being possible until 2030 at the earliest.

Most gas distributors were still expecting net growth in gas connections until September 2026, but at a slower pace than in the past, the commission said.

The proposed price increases would mostly compensate pipeline owners for the additional accounting cost of the accelerated depreciation that would come about as a result of the higher risk of “network stranding”.

First Gas acting chief executive Iwan Bridge said it was pleased the Commerce Commission had been able to “strike a balance between limiting costs to consumers and ensuring this critical infrastructure remains available to meet New Zealand’s energy needs”.

This is a draft decision and we will be engaging in the submission process ahead of the final decision on May 31, he said.”