Assessing Pipe-to-Pipe Competition: Theoretical Framework and Application to GTS
Prepared for NMa
In December 2007 The Brattle Group prepared a report for the NMa investigating the status of pipe-to-pipe competition (P2PC) between Gas Transport Services B.V. (GTS) and other gas transporters (hereafter referred to as the 2007 report). The research was motivated by European Regulation 1775/2005, which makes the use of tariff benchmarking to set tariffs conditional on the existence and extent of P2P competition facing a Transmission System Operator (TSO). Our report focused on the question: does the level of P2P competition facing GTS constitute “effective competition”We developed a specific interpretation of “effective competition” in the sense of the Regulation. In our view P2P competition is effective if it means that in the absence of cost-based tariff regulation GTS would be constrained by competitive forces from raising prices “significantly” above current levels. The “significance” of a level of price increase is inevitably a matter of judgement. We suggest—by analogy with the SSNIP test used in market definition for competition proceedings—that 10% is a reasonable criterion (however our empirical findings are not very sensitive to this choice of parameter value).