21 May 2009

Power customers overcharged billions - commission

10:53 pm on 21 May 2009

The Commerce Commission says electricity companies have used their market power to overcharge wholesale customers by billions, but have done so without breaking any laws.

A four-year inquiry has concluded that wholesale power prices were pushed up 18% higher than they needed to be, due to a lack of competition from 2001 to 2007.

The commission names electricity's big four in its findings - Meridian Energy, Genesis, Contact and Mighty River Power.

It found their market dominance was very great, especially during dry years, when they could unilaterally raise prices above the level required to meet their costs.

The total wealth transfer was $4.3 billion in wholesale prices which the commission presumes, but does not officially state, came from the retail customer in the long run.

The commission says Meridian Energy, Genesis, Contact and Mighty River Power took advantage of their market power to maximise profits, but did so legitimately and without deterring competition under Section 36 of the Commerce Act.

On the issue of collusion to reduce competition, the Commerce Commission issued a warning to Trustpower, which it says was at risk of breaching the rules.

A specific and limited event, which the commission would not elaborate on, is being investigated.

Minister warns against price rises

The Government says electricity companies should not consider raising prices in the wake of the commission's report.

Energy Minister Gerry Brownlee says the structure of the electricity system is clearly flawed and the situation cannot be allowed to continue.

"We cannot continue down this path. Over time, most people accept that prices do rise, but the astronomically steep path we've been on is not acceptable for the current government and we want to do something about it."

He told Checkpoint he wants his technical advisory group to advise on electricity market reform by September.

Mr Brownlee said generators and retailers should recognise the need for change and hold back on any planned price rises. He is not ruling out the possibility of price caps.

Consumer New Zealand chief executive Sue Chetwin says the commission's findings show customers' complaints over big price increases are justified.

Ms Chetwin says problems are caused by energy generators also being the retailers and a radical shake-up of the system is needed.

She says retailers would fight harder for customers if there was more competition in the market.