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Electric Kiwi says market power test needs strengthening

Electric Kiwi says market power test needs to be strengthened

First published in Energy and Environment on October 24, 2019.

Electric Kiwi and Haast Energy say the Commerce Act’s test for use of market power needs to be strengthened as the status quo is holding back the electricity sector.

In a submission on the review of section 36 of the Act, the minnow electricity retailers said it was important suppliers with substantial market power are deterred and prevented from misusing or abusing their market power for anti-competitive purpose.

“Based on our experience with establishment of Electric Kiwi and entry into the electricity retail market there are substantial market power and competition issues which are holding back the electricity sector, and harming consumers”

The submission said they were not surprised one of the large vertically-integrated gentailers previously opposed the reform of section 36, or that another of the large vertically-integrated gentailers sought to limit the Commerce Commission’s jurisdiction.

The current law failed to capture a range of anti-competitive conduct by firms with substantial market power, they said.

The Ministry of Business, Innovation and Employment’s observation that NZ is the only country requiring a strict causal connection between market power and conduct in question was “telling”.

Electric Kiwi and Haast Energy said MBIE should broaden the focus of the Commerce Act review to consider other remedies which could also help deter and prevent suppliers with substantial market power engaging in anti-competitive conduct.

“Submissions to the Electricity Price Review made by Electric Kiwi and Haast Energy, other independent retailers, and other stakeholders concerned about competition in the electricity industry, have highlighted the competitive harm caused by vertically-integrated incumbent gentailers. These submissions have recommended structural change, including vertical-separation of generation and retail activities, and horizontal separation (particularly of Meridian) of generation assets to reduce the level of market power, particularly the level of market power during dry-years (when Meridian can essentially operate as a monopoly),” the submission said.

In contrast BusinessNZ said in its submission there was no need for change. It said, an extensive process has already looked at the need (or otherwise) to amend section 36 and concluded with no changes.

“An extreme response, without going through a proper policy process, will inevitably produce a sub-optimal and likely controversial outcome.”

The suggestion the connection between a business's market power and the conduct to be prohibited should be abandoned by removing the "taking advantage" limb) would leave large businesses potentially at risk, even if their alleged market power is not used.

“It should come as no surprise the business community does not want change when presented with an extreme option based on little evidence.”

Consultation on the review of section 36 of the Commerce Act relating to the misuse of market power, along with other minor changes began in January 2019 and closed in April 2019. The Government is currently considering submissions and expects to make final policy decisions by early 2020.

First published in Energy and Environment on October 24, 2019.

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