Legal Framework
8. The terms of reference and statutory framework for the Inquiry are discussed in Chapter 2 (Legal Framework).
Ministerial Request
9. The Minister requires the Commission to report to the Minister as to whether an Order in Council under s 53 of the Commerce Act may and should be made in relation to gas services (Commerce Act 1986 s 52 and s 56).
Imposition of Control
10. Section 52 of the Commerce Act requires the Commission to consider two key issues in relation to whether or not control under Part V may be imposed. Goods or services may be controlled under s 52 if:
- competition is limited or is likely to be lessened in a relevant market; and
- control is necessary or desirable in the interests of persons who acquire or supply the goods or services in the affected market or markets.
11. In considering whether competition is limited or is likely to be lessened, the Commission assesses both structural and behavioural considerations in the markets in which gas services are or will be supplied.
12. In considering whether control is necessary or desirable in the interests of acquirers, the focus is on the benefits of control for the acquirers of gas services (both direct and indirect acquirers). This has involved an analysis of what would happen if a form of control were not imposed (the counterfactual), contrasted with the potential benefits and detriments to acquirers if control were to be imposed (the factual).
13. Having determined whether control "may" be introduced under s 52, the Commission has conducted further analysis to determine whether an Order in Council imposing control "should" be made (s 56(1)). The matters considered in relation to whether control may be imposed remain relevant. In addition, the Commission has considered the efficiency costs of achieving reductions in excess returns, the magnitude of the benefit to acquirers, the impact of a recommendation not to control and other qualitative considerations.
The Form of Control
14. The Inquiry is limited to assessing whether control under Part V may and should be imposed and not the form of that control. To advise the Minister on how the Commission would administer control, prior to any declaration of control, would risk predetermining the processes associated with administering control under Part V.
15. However, in order to assess the likely costs and benefits of control the Commission must select a hypothetical form of control. Consequently, the Commission has assumed a form of price cap regulation under Part V. The form of control assumed for this purpose is preliminary and will not pre-empt any decision the Commission may be required to make in the future regarding control under Part V.
Request for Additional Advice
16. The Minister also requested the Commission's advice on "the methodology that the Commission considers appropriate for valuation of pipeline assets", "the net benefits to the public of control" and "any other matter that the Commission may think relevant to a decision on whether control should be introduced".
17. Finally, if the Commission recommends that gas services should be controlled, the Minister asked for the Commission's advice on the technical provisions relating to declaration of control as set out in s 57A of the Commerce Act.
18. The Commission's responses to these requests are provided in Chapter 20 (Recommendations).
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