During 2012 and 2013, Vector is undertaking a review of its Gas Transmission Pricing Methodology (GTPM).

Context of the Review

Vector’s pricing methodology was designed by the Natural Gas Corporation during the 1990’s. At the time the gas industry was highly integrated and subject to a light-handed information disclosure regulatory regime.

Since 1999-2000 the overall structure of the GTPM has remained largely unchanged. However the regulatory and operating environment has undergone significant changes:

• The information disclosure regime has been supplemented by a range of requirements including:
  • regulated pricing principles that determine how prices must be established;
  • the development of a price or revenue cap which prescribes allowable revenues; and
  • the establishment of a gas industry body whose mandate includes creating incentives for investment, providing access to competitive market arrangements and downward pressure on prices.
• Reduced operational headroom on Vector’s Northern Pipeline with restrictions on the availability of additional capacity.

Objectives of the Review

The objective of the GTPM project is to develop a robust, defensible and transparent GTPM. The pricing methodology must meet Vector’s regulatory requirements including being able to demonstrate adherence with regulated pricing principles and prices must be set to recover revenue requirements consistent with the regulated price path.

The pricing methodology should, where practicable and to the extent possible, be designed to be flexible enough to be consistent with gas market design and commercial and contractual frameworks as they evolve in New Zealand.

Indicative timelines