Power giants defend 'bid-rigging' actions

Contact Energy and TrustPower are defending actions which led to a Commerce Commission warning over bid-rigging behaviour in the purchase of a power station.

Contact board papers from 2002 referred to the need to "work with TrustPower" but yesterday the company said that it had dealings with its rival for the right competitive reasons.

TrustPower says consumers would have been helped if the discussions had resulted in a power hedging deal but it was taking the commission warning "on the chin".

The Commerce Commission investigation followed bidding for the purchase of the Cobb power station, near Nelson, owned by NGC Holdings.

The commission says the behaviour of the parties would have provided sufficient evidence of a likely contravention of the Commerce Act but it had instead opted for a warning.

Contact and TrustPower were alleged to have tried to engage in anti-competitive conduct during the purchase by tender of the power station, the commission said.

Contact approached TrustPower to consider a hedge arrangement for power from Cobb, depending on which company was successful in the auction.

During initial discussions, inappropriate references appeared 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, the commission said.

Contact board papers included references to the need to "work with TrustPower", "reducing competitive tension" and "consider working together to reduce competition".

TrustPower ended up buying the station, Contact did not bid and a TrustPower spokesman said no hedging arrangements were entered into.

Commission chairman Mark Berry said communications between the two companies went too far and initially were also aimed at avoiding competitive bidding for the power station.

"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."

Rather than prosecute, a warning was issued because Contact's approach to TrustPower was made in the context of a negotiation for a normal commercial hedging arrangement. The initial attempt at co-operation was over a short period and did not in the end appear to have affected the bidding behaviour of the parties. NGC was unlikely to have been detrimentally affected, the commission said.

A Contact spokesman said: "In hindsight, we might be more mindful of how comments seven years down the line could potentially be misinterpreted by third parties."

The company had fully co-operated and welcomed closure of the "historic matter".

Discussions in question were focused on addressing transmission constraints in the top of the South Island.

"The discussions were aimed at limiting potential for a monopoly electricity supply to develop behind that transmission constraint and, as such, were pro-competitive."

A TrustPower spokesman said the negotiations followed some upheaval in the electricity sector and a dry year which meant all power companies were scrambling to nail down hedging arrangements.

"Contact came to us with a suggestion, nobody did anything, nobody was disadvantaged. This isn't the first time where someone has had a discussion and nothing has happened and the Commerce Commission has issued a warning. You've got to take it on the chin."

The commission warned that if further allegations of anti-competitive behaviour by either party were made in future, it would take the warning into account.