6. Proposed Amendments to Contract Disclosure Requirements
6.1 NGC's Wholesale Contract Disclosure Requirements
6.1.1 Proposed Requirements
59. The Ministry proposes removing the requirement for NGC to disclose details of its wholesale gas contracts.
6.1.2 Rationale for Proposal
60. The requirement for NGC to disclose its wholesale gas contracts was developed at a time when NGC was the only wholesale gas supplier. The Government was concerned that NGC would be able to use its market dominance in the wholesale market to restrict competition in the retail market for industrial consumers. NGC could conceivably have done this by anti-competitive pricing such as predatory pricing, or subsidising its retail activities.
61. The Ministry considers that significant competition has developed in the wholesale gas market since the Regulations were established, and that the disclosure requirements are therefore no longer justified. Evidence of the development of competition includes:
- the number of active competing wholesalers has increased;
- the number of potential wholesalers (which have the scope to increase market contestability) has also increased; and
- the divestment by Fletcher Challenge Limited of its interest in NGC, effective from 14 July 1999, breaks the ownership link of NGC to the production sector of the industry.
62. Wholesalers also face potential competition from other fuel sources such as electricity. Whilst this is not a new situation, it does serve to increase market contestability.
6.2 Amendment to the Definition of "Standard" Contract
6.2.1 Proposed Requirement
63. A submission to the Ministry has suggested we review the definition of a "standard" contract, defined in Regulation 2 as a contract between a pipeline owner, wholesaler or retailer and 5 other persons. The submission suggested that the number of other persons should be smaller. The Ministry proposes to reduce the number to two.
6.2.2 Rationale for Proposal
64. The Regulations require disclosure of certain information about wholesale, transmission and distribution contracts (Regulations 8-14). Where a standard contract is involved, the prescribed information only has to be disclosed once (Regulation 9(4)); for non-standard contracts, the prescribed details of each particular contract must be disclosed.
65. The submission mentioned above has suggested that the threshold of five persons should be lower because pipeline businesses are being run separately from gas supply businesses and are less likely to have "standard" contracts for five or more persons. In this environment, the submission argues the threshold should be reduced.
66. In principle, information disclosure requires that the terms, conditions and prices of all contracts entered into with monopoly pipeline owners should be transparent. The provisions for "standard" contracts were introduced to aid compliance and analysis by avoiding the disclosure of large numbers of identical contracts. The Ministry considers that reduction of the threshold to two would reduce compliance costs without jeopardising the quality and usefulness of disclosures.
6.3 Disclosure of Prescribed Agreements
6.3.1 Proposed Requirement
67. The Ministry proposes to require disclosure of operating agreements, side letters and associated documentationrelating to any contracts ("prescribed agreements" in terms of Regulation 8) required to be disclosed.
6.3.2 Rationale for Proposal
68. Some prescribed agreements may have separate operating agreements and side letters. These separate operating agreements and side letters may not be disclosed under the current Regulations, as they may not technically be part of the agreement. This creates an anomaly that can effectively result in partial disclosure of terms and conditions relating to prescribed agreements.
6.4 Disclosure of Customer Names by NGC
6.4.1 Proposed Requirement
69. The Ministry proposes to amend Regulation 12(3) to make it consistent with Regulation 14(3). The effect of this proposal would be that NGC would no longer be required to disclose the names of gas customers with which it has transmission or distribution contracts, and instead disclose only the names of gas retailers with which it has such contracts. In relation to transmission and distribution contracts with customers other than retailers, NGC would be required to disclose the customer characteristics in Regulations 12(1) and (2).
6.4.2 Rationale for Proposal
70. The policy background to Regulations 12 and 14 is that contract disclosure should include sufficient information to enable interested persons to understand the nature of the parties with whom contracts have been signed. The customer characteristics listed in Regulations 12(1), 12(2), 14(1) and 14(2) achieve this. However, where the party is a retailer, customer characteristics are not meaningful, and names of retailers are therefore required.
6.5 Disclosure of Delivery Pressures by NGC
6.5.1 Proposed Requirements
71. NGC has suggested dropping the requirement in Regulation 12 for NGC to disclose contract delivery pressures to each gas distribution customer. The Ministry does not consider the requirement should be dropped. Comments are invited.
6.5.2 Rationale for Proposal
72. Under Regulation 12(2)(b), NGC is required to disclose for each gas distribution contract the receipt pressure agreed with each customer. This requirement is identical to Regulation 14(1)(c), which applies to other pipeline owners' gas distribution businesses. NGC argues its disclosure is onerous given the large number of customers it supplies, under non-standard contracts.
73. The Ministry understands delivery pressures are important information for competing retailers. While there may be ways of presenting the data that would make disclosure easier for pipeline owners and more user-friendly for users where large numbers of customers are involved, the Ministry sees this as a compliance issue rather than a reason for amending the Regulations.
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