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Energy Cos warned about anti-competitive behaviour

Media Release - Energy companies warned over alleged anti-competitive behaviour

The Commerce Commission has issued a formal warning to two energy companies alleged to have attempted to engage in anti-competitive conduct during the purchase by tender of a power station near Nelson in 2002.

The warning, issued to Contact Energy Limited (Contact) and TrustPower Limited (TrustPower), follows an investigation into possible bid-rigging behaviour under section 30 of the Commerce Act 1986.

The Commission investigation discovered communications between Contact and TrustPower over the purchase of the Cobb hydroelectric power station, one of the electricity generation assets owned by NGC Holdings Limited. Contact approached TrustPower to consider a back to back hedge arrangement for the supply of electricity from Cobb depending on which company was successful in the auction. During initial discussions, inappropriate references appear to have been made along the lines that Contact and TrustPower not bid against each other and as a result push up the price for Cobb. Cobb was subsequently acquired by TrustPower for $92.5 million in 2003.

“While the Commission recognises the value hedging contracts bring to the electricity market, in this case, the communications between Contact and Trustpower went too far and initially were also aimed at avoiding the parties bidding competitively for Cobb,” said Commerce Commission Chair Dr Mark Berry. “The integrity of auction and bidding arrangements underpin competitive markets. Any attempt to undermine this represents a significant departure from expected and lawful commercial practice. Bid rigging of this kind is deemed to be unlawful under the Commerce Act.”

In deciding to issue a warning on this matter rather than prosecute, the Commission has taken into account the fact that the approach by Contact to TrustPower was made in the context of a negotiation for a normal commercial hedging arrangement and that was the principal objective. The Commission also considered the fact that the initial attempt was very short-lived and did not in the end appear to have affected the bidding behaviour of the parties in the auction process and NGC was unlikely to have been detrimentally affected.

Although the behaviour of the parties would have provided sufficient evidence of a likely contravention of the Commerce Act, the Commission considers that a warning to the parties is appropriate given the limited nature of the discussions and that the negotiations were principally aimed at achieving normal hedging arrangements.

If further allegations of behaviour that may contravene the Commerce Act by either party are made in the future, the Commission will take these warnings into account.

Background

This warning is the final remaining issue relevant to the Commission’s electricity market investigation published in May 2009.

Section 30 of the Commerce Act addresses the provision of a contract, arrangement or understanding that has the purpose, effect, or likely effect, of fixing, controlling or maintaining the price of goods or services supplied or acquired by parties. It deems such behaviour to substantially lessen competition in a market and to be in breach of the Commerce Act 1986.

Section 80(1)(b) of the Commerce Act provides for penalties of up to ten million dollars for any attempt to breach a provision in Part 2 of the Commerce Act, which includes Section 30.

Only the High Court can determine if the Act has been breached.

ENDS

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