“More informed public debate is required on the level and direction of economic regulation in New Zealand before we travel down an irreversible path that will damage the economy,” said Powerco chief executive Steven Boulton.

“Now the government has received the Commerce Commission’s view of the industry, it is time for gas distribution and transmission businesses to further put their case, based on the reality of operating a gas pipeline business,” he added.

“While we are still digesting the report, our initial reaction to the report is that we do not agree with the Commission’s recommendation that Vector should be controlled,” said Vector chief executive Mark Franklin.

NGC chief executive Phil James said he was pleased the commission had decided NGC should not be price controlled, as its May draft report had recommended, though he was still concerned the Commission was suggesting a targeted control regime for gas reticulators similar to that in force for electricity lines companies.

Energy Minister Pete Hodgson yesterday released the Commission’s final report on the gas reticulation sector, which recommended direct price control for Vector and Powerco as they were earning excess returns above their cost of capital.

The Commission also found NGC Transmission, NGC Distribution and Wanganui Gas earned significant excess returns but did not recommend direct control for them, nor for Maui pipeline owner Maui Development Ltd, Todd Energy-controlled Nova Gas or for individual transmission pipelines located in Taranaki.

Franklin said the Commission's report showed a number of fundamental differences that Vector would have to work at constructively with the government to reconcile.

However, Vector was puzzled with the control recommendation because Economic Development Ministry statistics showed Vector's retail prices were in the bottom one third of New Zealand. Benchmarking studies showed Vector was 20% more efficient than other comparable companies internationally.

James said the report confirmed NGC’s prices reflected the service the company delivered to customers and the investments it had made and continued to make. "It also reinforces our long held view that past studies, including the Simon Terry & Associates Report, were seriously flawed."

All the executives said a key difference between gas and electricity was that electricity lines companies provided a universal service, which limited the impact of regulation on investment, while gas was an optional energy form, with pipeline services provided only where it was economic. Gas competed with electricity, LPG, coal and wood.

"At a critical time of transition to a post-Maui gas supply environment, such an intervention may distract pipeline businesses from concentrating on important energy security issues and future industry requirements, including infrastructure investment,” warned James.

Gas only reached 13% of Kiwi energy consumers who used only 2-3% of all gas consumed. This rate was very low compared to southern Australian states where penetration rates of 80-90% had been achieved, said Boulton.

“Price controls are incredibly hard to get right; the short term benefits are small, whereas the costs of getting it wrong will put the whole industry and future investment at future risk,” Boulton said.