Competition Analysis
19. Competition issues are discussed in Chapter 3 (Competition Issues).
Market Definitions
20. In defining markets, the Commission has given careful consideration to previous decisions of the Courts and of the Commission in energy related cases. In addition, it has given particular attention to determining how markets may be defined to best assist it to address the questions of relevance to the Inquiry.
21. The markets adopted by the Commission are:
- the market for the provision of gas transmission services between North Taranaki and Huntly;
- the market for the provision of gas transmission services for the rest of the North Island;
- the separate markets for the provision of gas distribution services in the area encompassed by each incumbent gas network; and
- the market for the provision of gas distribution services to commercial and industrial consumers in the vicinity of bypass networks.
22. Metering has been incorporated as an element of the gas services market where the provider of gas services also provides a metering service.
Generic Competition Issues
23. Transmission systems have natural monopoly characteristics. New competitive entry may be possible where there are capacity constraints, but at present there is surplus capacity in most parts of the transmission system.
24. Head-to-head competition between transmission systems is possible between North Taranaki and Huntly (where NGCT and MDL have parallel pipelines) and in Taranaki (where there are several small transmission pipelines in the same area).
25. Distribution systems also have natural monopoly characteristics, with limited potential for new entry. Entry where it has occurred has been in the form of bypass pipelines. Bypass opportunities tend to be limited to areas where there is a concentration of medium to large customers who are close to a transmission pipeline, or to an existing bypass network which can expand, or where there is an alternative source of gas (such as landfill gas).
26. Where there is a bypass network, the Commission considers that there is strong evidence of vigorous competition, which has had a major impact on distribution prices. However, outside the very limited bypass areas there is little potential for pipeline-on-pipeline competition in the distribution markets.
27. The Commission considers that the constraint provided by the energy users to switch energy forms provides a constraint on energy suppliers, but this falls short of the constraint which suppliers face in competitive markets.
28. Long-term contracts and the regulatory regime provide some limited constraint on gas service providers, particularly for large users.
29. The analysis of generic competition issues has led the Commission to conclude that while, in general, there is workable or effective competition in bypass markets, competition is limited elsewhere.
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