Power firms come under scrutiny

The Commerce Commission will conduct an investigation into the claims of anti-competitive behaviour and restrictive trade practices in the power industry.

The regulator said yesterday, after news of the probe leaked out, that the investigation had started "due to complaints and concerns about electricity prices, company profits, issues around customer switching and a perceived low level of competitive activity".

The purpose of the investigation was to identify if "there are any activities in these markets which may be in breach of Part II of the Commerce Act".

Part II deals with restrictive trade practices and covers activities such as price fixing and taking advantage of market power to lessen competition.

"The investigation has priority status and the commission intends concluding the investigation in a timely manner," it said.

"It is envisaged that substantial progress on the investigation will have been made by the middle of 2006."

The commission - which often does not comment on its investigations - confirmed it was conducting the probe after news of the investigation leaked out from business lobbyists Business NZ.

Contact Energy spokesman Patrick Smellie said the company welcomed the inquiry.

"There's a lot of public commentary and concern about whether the electricity market is sufficiently competitive," he said.

"Certainly where we sit it is, it will be good to have the opportunity to present that case."

Smellie said most people could choose between three or more electricity companies - more choice than most had with supermarkets or phone companies.

The move to investigate the market had been on the cards.

"In that sense, it's not a surprise, it's more a matter of when they were going to get around to it."

Smellie said the firm accepted there were always ways of improving the wholesale electricity market.

All the big power companies, including the three big state-owned enterprises, Meridian, Genesis and Mighty River, sell power they generate into a wholesale market. Their own retail arms then sell power to customers.

Suspicion about the true level of retail competition stems in part from strong incumbent positions enjoyed in areas by the big five companies. Their retail bases tend to be close to where their generation is, such as Meridian's domination of the South Island.

Business NZ chief executive Phil O'Reilly said the inquiry was needed because high electricity spot prices "appeared to be at odds" with present hydro lake storage levels.

"The Electricity Commission says there is adequate storage in the southern lakes in a situation where current inflows combined with thermal, wind and geothermal plant could meet demand even if the lakes were empty,"he said.

"It is hard therefore to understand why the spot price of electricity remains at such a high level."

Southern hydro lakes are low, but the Electricity Commission says New Zealand is not at a high risk of power blackouts next year. Summer is traditionally a period of low demand and spring storms coupled with snow melt can mean the lakes fill up quickly.

O'Reilly said it was not surprising the present conditions would lead to "speculation that generators are profiting at the expense of New Zealand businesses".