Gas Industry Company at a glance

Gas industry Co is the gas industry body, responsible for developing industry arrangements that ensure gas is delivered safely, efficiently and reliably to new and existing customers. Its strategy is to optimise gas’s contribution to New Zealand.

 
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Optimising the Contribution of Gas

 

The New Zealand Gas Industry

 

Natural gas makes a substantial contribution to New Zealand’s energy supplies, providing energy security and supporting the New Zealand economy in a way that helps to achieve the country’s environmental sustainability goals.
 
It is used by about 258,000 industrial, commercial and residential customers. It accounts for approximately 20% of total primary energy supply and 11% of total small consumer energy use.
 
The energy supply and economic importance of natural gas has grown rapidly since the first commercial discovery at Kapuni in 1959. This discovery led to increased exploration activity and further major gas finds.
 
The commencement of natural gas deliveries from the onshore Kapuni field in 1970 enabled the replacement of aging town gas works that produced gas from coal. The cleaner, more efficient natural gas was initially distributed through local gas networks to nine communities serviced by a transmission pipeline running north to Auckland and south to Wellington.
 
Around this time, gas supplies were greatly strengthened with the discovery of the much larger offshore Maui field. Maui gas deliveries began in 1979, heralding the rapid expansion of the high pressure gas transmission system to Northland, the Bay of Plenty and Hawke’s Bay and the reach of natural gas into all major populated centres of the North Island.
 
Today, natural gas has  a wide range of applications, fuelling thermal power generation plants and large industries (including in the key export sectors of meat, dairy and timber processing, and steel manufacture), and providing the feedstock for petrochemical (methanol and ammonia/urea) production. Gas is also used directly in a wide range of small to medium commercial enterprises, and for cooking and for space and water heating in households.
 
In the past decade, as Maui gas reserves have diminished, the gas industry has transitioned from a dependence on that field to sourcing gas from multiple fields. Today, market demand of approximately 155 PJ a year is met from about 17 different fields and wells.
 
While there has been exploration activity in many onshore and offshore regions of New Zealand, all gas production so far has been in Taranaki. Natural gas is not available in the South Island. However, LPG (liquefied petroleum gas), a mix of propane and butane extracted from natural gas, is available throughout the North and South Islands.
 
Go here  for more about gas production, transportation and use, as well as industry participants.
 
 

Gas Industry Co

 

The success of the complex and changing gas industry relies on a number of interdependent participants, from upstream explorers to end users, as well as on competitive markets and ongoing efficient investment at all stages.
 
These changing dynamics, Government policy expectations for the industry and the related need for effective arrangements to ensure industry participants can operate and invest in the market with confidence provided the context for the establishment of the gas industry body – Gas Industry Co – in 2004 under a co-regulatory governance model.
 
Gas Industry Co’s immediate focus was on enhancing consumer outcomes and developing new market and infrastructure access arrangements. In its first years of operation, a number of significant governance arrangements have been put in place (both voluntary and regulated) to progressively align industry and market practices with statutory and energy policy objectives (see Significant Milestones below).
 
As ongoing workstreams continue to address the legislative and policy priorities, Gas Industry Co is also building on its statutory role through a broader corporate strategy focused on optimising the contribution of gas to New Zealand into the future. This involves Gas Industry Co taking a stronger leadership and facilitation role to help the “end to end” coordination of the industry and ensuring the New Zealand gas story is well understood and future development is facilitated.
 
Through our close liaison with the industry and Government, we seek to maintain the gas industry’s attractiveness to explorers, developers, infrastructure owners, wholesalers and retailers, and for gas itself to continue to be available as an efficient, cost effective energy option for consumers.
 
In seeking to optimise gas’ contribution to New Zealand, our strategic goals therefore are to:
  • Deliver effectively on our accountabilities as the gas industry body, specifically to:
    • build on industry arrangements that ensure gas is delivered to existing and new customers in a safe, efficient, and reliable manner
    • deliver on the provisions of the Government Policy Statement on Gas Governance
  • Build and communicate the New Zealand gas story, including through increased disclosure and communication
  • Facilitate efficient investment in, and efficient use, of gas infrastructure
  • Build efficient, competitive, and confident gas markets, including through:
    • developing wholesale market options
    • improving retail market outcomes
    • protecting small customers
    • ensuring large end users have access to competitive offers and are confident to invest
 
Gas industry Co’s more detailed objectives and workstreams, developed in consultation with the industry, are set out in the annual Strategic Plan.
 
 

Statutory Framework

 

Gas Industry Co was established under Part 4A of the Gas Act 1992 (the Act) as the gas industry’s approved co-regulatory body. Gas Industry Co works with both the Government and the industry to develop recommendations on industry arrangements that meet the objectives of the Act and the April 2008 Government Policy Statement on Gas Governance  (the GPS) – itself part of the Government’s wider New Zealand Energy Strategy.
 
Gas Industry Co is owned by industry shareholders and is funded by a levy on industry participants. It is incorporated as a company under the Companies Act 1993 and is governed by a Board comprising a majority of Independent Directors as well as Industry-Associated Directors.
 
Gas Industry Co regulatory oversight encompasses the natural gas wholesale and retail markets, processing facilities, and the transmission and distribution sectors of the industry. It does not have regulatory involvement in the upstream gas exploration and production sector, although a number of producers are wholesale market participants. It also has not been required to extend such arrangements to the LPG sector.
 
Gas Industry Co works closely with other regulatory bodies whose responsibilities also include the gas industry:
 
Ministry of Economic Development
 
  • The safe supply and use of gas (Energy Safety Service)
  • Monitoring and overseeing the co-regulatory model of gas governance
  • Consumer protection (Ministry of Consumer Affairs)
 
Commerce Commission
  • Enforcing competition, fair trading and consumer credit legislation
  • Implementing a price-quality regime for gas pipeline (transmission and distribution) services and the associated information disclosure regime
In recognition that they share common interests in the gas industry, on August 5 2011 Gas Industry Co and the Commerce Commission entered into a Memorandum of Understanding (MoU) setting out how they will coordinate their respective roles under the Gas Act 1992 and the Commerce Act 1996. The MoU is available here.
 
Close liaison is also maintained with the electricity regulator, the Electricity Authority, in areas of mutual interest.
 
 

The Gas Act

 

Part 4A of the Gas Act 1992, under which Gas Industry Co was established, prescribes policy objectives which the Company must take into account when recommending rules, regulations or non-regulatory arrangements to the Minister. The main policy objective in this context is to:
 
 'Ensure that gas is delivered to existing and new customers in a safe, efficient, and reliable manner.'
 
Other objectives of the Act that Gas Industry Co must consider when making recommendations relate to:
  • Facilitating and promoting the ongoing supply of gas to meet New Zealand’s energy needs by providing:
    • access to essential infrastructure; and
    • competitive market arrangements;
  • Maintaining incentives for investments;
  • Downward price pressure;
  • Managing supply risks; and
  • Maintaining consistency with the gas safety regime.
 

The GPS

 

The Act enables the Minister of Energy to suggest objectives and outcomes through the GPS.  General objectives in the GPS relate to:
  • Consumer outcomes and retail arrangements;
  • Gas wholesale markets; and
  • Infrastructure access.
Specific policy objectives of the 2008 GPS require Gas Industry Co, when making recommendations, to have regard to:
  • Fairness and environmental sustainability as part of its principal objective;
  • Efficient use of energy;
  • Signalling to customers the full costs of producing and transporting gas;
  • The quality of gas services reflecting consumer preferences;
  • The gas sector’s contribution to the Government’s climate change objective; and
  • Facilitating competition in the upstream and downstream markets by minimising barriers to access to infrastructure.
The GPS also addresses the need for sound arrangements for the industry to manage critical gas contingencies and specifies the Government’s expectations for a consumer complaints resolution system.
 
Gas Industry Co will work with industry to develop non-regulated solutions to issues where possible. However, it is able to make recommendations to the Minister of Energy on a wide range of industry matters, including the making of rules and regulations in relation to the wholesaling, processing, transmission and distribution of gas where a non-regulated solution is not achievable for any reason.  
 
 

Industry Governance and Compliance

 

Industry governance arrangements are designed to ensure the gas market is competitive and working efficiently in the supply and delivery of gas to consumers. The arrangements are underpinned by non-regulated practices, as well as certain rules and regulations.
 
As part of these arrangements, Gas Industry Co performs the role of the ‘market administrator’, which includes overseeing a central gas registry, and reconciliation processes.
 
Gas Industry Co also administers the compliance processes, including through an independent Rulings Panel.
 
Go here for more about the compliance and dispute resolutions process.
 
 

Consumer Complaints Resolution

 

The GPS requires effective access to a complaints resolution process for all small gas consumers. Gas Industry Co worked with the (then) Electricity Commission to recommend the approval of a single, dual-fuel complaints resolution body.
 
A free, independent complaints resolution service is provided by the Electricity and Gas Complaints Commission (EGCC), the operation of which is overseen by the Electricity Authority (EA) and the Ministry of Consumer Affairs. Gas Industry Co liaises closely with these agencies to stay informed of issues relevant to gas consumers.
 
Go here for more information about the complaints resolution process.
 
 

Significant Milestones

 

As part of its broader strategic activities, Gas Industry Co has provided advice and made a number of significant recommendations to the Minister since its formation in 2004. These have included:
 
2010
 
  • Advice on gas quality arrangements - Gas Industry Co reviewed industry arrangements for gas quality (Gas Governance Issues in Gas Quality: Issues Paper) to assess whether appropriate arrangements are in place to prevent gas quality incidents, and if contractual arrangements allow the costs of a gas quality incident to be met efficiently. The Minister was advised that regulation was not required at this time, but continued work with industry participants is necessary to improve existing arrangements. That work is ongoing, with a further review taking a more detailed look at gas quality arrangements across the supply chain.

 

  • Advice on gas distribution arrangements - Gas Industry Co assessed whether arrangements for terms and conditions for distribution network access, contract terms and price/service level disclosure required regulatory intervention. The Minister was advised there was no strong case for regulation, but arrangements can be improved. Work continues with industry participants, particularly in the development of distribution contract benchmarks

 

  • Advice on interconnection to private transmission pipelines. The Minister had become aware of parties having difficulty gaining access to private pipelines in Taranaki and asked that Gas Industry Co assessed whether it is desirable to apply the Interconnection Guidelines to private pipelines. We concluded that since the Interconnection Guidelines were designed for open access pipelines, they would need to be amended in order to apply to private pipelines. However, we considered that the problems being experienced by parties were due to access and not interconnection. The advice concluded that further regulatory reform is not warranted at this stage however Gas Industry Co is joining with other regulatory bodies (MED and Commerce Commission) on a protocol for sharing information regarding access concerns or disputes relating to private pipelines.

 

  • Recommendation on the endorsement of arrangements for the oversight of gas retail contracts. The Minister endorsed a recommended scheme to monitor contracts between retailers and domestic and small business consumers. This followed an analysis, including a baseline review, of consumer contracts to ensure they are in the long term interest of consumers, clearly set out retailer/consumer obligations , reflect market structures and support an effective complaints resolution scheme. The Minister had previously endorsed a recommendation for an industry-led arrangement of contract benchmark terms.

 

  • Recommendation on technical amendments to the Switching Rules, arising largely from industry feedback. The amendments are designed to improve the efficiency of the Switching Rules, which overall have significantly improved the ability of customers to change supplier, and the time taken for switches to occur. 

 

  • Advice on Interconnection to Open Access Pipelines - the review of the two Transmission System Owners’ (MDL and Vector) interconnection arrangements against Gas Industry Co’s Guidelines on Interconnection with Transmission Pipelines (the Interconnection Guidelines) showed the Transmission System Owners’ arrangements were generally well aligned with the Guidelines.  Gas Industry Co advised that regulation was unnecessary at this stage and that we would evaluate the next interconnections that take place under the new arrangements.
2009
 
  • Recommendation on the direct use of gas. Gas Industry Co commissioned Concept Consulting Group to prepare a report, pursuant to the GPS, as a basis for advising the Minister on the extent to which policies to enhance the direct use of gas could result in greenhouse gas emission mitigation. The report considered the efficiency of various gas end-use applications and their substitutes, as well as identifying barriers to direct use.  It was recommended that a water heating incentive under the EECA Energywise programme be extended to include instant gas water heaters and that an independent agency be tasked to provide consumers with information about their energy choices.   Gas Industry Co continues to liaise with EECA.

 

  • Various recommendations on the enforcement of gas governance arrangements (Compliance Regulations)

 

  • Recommendation on technical amendments to the Gas (Downstream Reconciliation) Rules to improve their operation
2008
 
  • Recommendation on arrangements for the effective management of critical contingency events - these regulations created the role of the Critical Contingency Operator (CCO) who is charged with restoring the supply/demand balance at times when supply is severely constrained. They also require pipeline owners, retailers and consumers (other than householders) to comply with directions issued by the CCO.

 

  • Recommendation on arrangements for the allocation and reconciliation of downstream gas quantities - these rules were designed to improve the arrangements for allocating gas consumption to retailers trading on shared distribution networks. The change to a rules-based system has increased transparency for retailers, created a fairer system and was instrumental in reducing “unaccounted for gas”, i.e. gas that is apparently consumed but for which no retailer assumes responsibility.
2007
 
  • Recommendation on gas disconnection and reconnection.   Following an inquiry into different practices and charging regimes by retailers for disconnection, reconnection and meter removal, Gas Industry Co recommended against regulation, but acknowledged a low degree of standardisation across the industry, which was confusing for customers. It was recommended an industry team be formed to establish standard practices, however subsequent proposals did not receive agreement of all parties and it was ultimately recommended that disconnection/reconnection practices are implemented as part of a wider review of consumer contract arrangements.
 
  • Recommendation on wholesale market development, including the completion of detailed market design and governance arrangements, and the creation of an IT platform for trialling. Gas Industry Co had earlier released a standard gas sale agreement, developed in conjunction with the industry, designed to ease the process of facilitating ad hoc gas sales as an interim step toward trading by way of an electronic platform. Gas Industry Co subsequently, in 2010, advised the Minister that the wholesale market trial would be discontinued. Some short term trading was already occurring, although without transparency, and the market trial was not used. Gas Industry Co continues to monitor progress of a proposed industry-led balancing gas exchange that would provide a form of price signalling.

 

  • Recommendations on switching arrangements for the New Zealand gas industry and on regulations for the enforcement of those arrangements. The resulting switching rules included the establishment of a gas registry, which enabled retailers to automate aspects of the switching process and improve efficiency. Once the switching arrangements became fully effective the rate of customer switching tripled and switching times have reduced from weeks or months to an average of approximately 7 days

 

2006

 

  • Recommendation on the specification for reticulated natural gas. Gas Industry Co assessed the adequacy of the standard for reticulated gas as new gas fields came on stream. The Minister was advised that current limits on the gas specification did not need to change as they provided appropriate levels of safety and reliability for consumers, while also achieving an appropriate balance between the various needs of industry participants.
 
  • Final recommendation on fixed charges for small users and other consumer issues. After assessing the level of fixed charges for small consumers, Gas Industry Co recommended against regulations to limit or control retail fixed charges, or the charges retailers pay for transmission, distribution and meter rental. Gas Industry Co concluded there were no efficiency benefits, alternatives to reticulated gas existed, extending regulations to transmission, distribution and metering services provided to retailers presented practical difficulties, and regulation may produce economic inefficiencies.
 
  • Review of the state and performance of the New Zealand gas industry.  Pursuant to the Gas Act, Gas Industry Co presented a report on the current state and performance of the gas industry, prepared on its behalf by the Allen Consulting Group.
Go here for full details of these and other publications.
 
 

Background to Gas Industry Co’s Establishment

 

A comprehensive review of the gas sector was conducted by the Government in 2001/02 to ensure the gas sector could meet the Government’s overall energy policy objective. In a subsequent Policy Statement in March 2003, the Government stated that it favoured industry-led solutions where possible, but that it was prepared to use regulatory solutions where necessary. This arrangement was consistent with a regime based on self-regulation, and the gas industry was invited to establish a governance structure and work programme.
 
The Gas Industry Steering Group (GISG) was formed to respond to the Policy Statement. Following consideration of the requirements and the proposed self-regulatory governance structure, it advised that the industry would require some form of regulatory backing to achieve the Government’s objectives and outcomes. The Government agreed, and the Act was changed in 2004 to give effect to a co-regulatory model of governance.