Market balance of power to change

By BRIAN FALLOW

WELLINGTON - Power prices would have risen for years if TransAlta had acquired Contact Energy, as current competition law allows, says acting Commerce Minister Trevor Mallard.

Outlining plans to strengthen the Commerce Act's provisions on the acquisition and abuse of market power, Mr Mallard yesterday cited a study commissioned by the Ministry of Commerce which concluded that if the acquisition went ahead, wholesale electricity prices would rise by up to 5 per cent a year over five years.

The Commerce Commission cleared TransAlta to acquire the cornerstone stake in Contact, though in the event it was outbid by Edison Mission.

A merged TransAlta and Contact would have had over 50 per cent of the retail market, according to the study by Putnam Hayes and Bartlett.

It would also have had opportunities to influence the wholesale market as a generator.

Much of the time it would have been the marginal supplier, setting the price.

That is the kind of consequence the Government wants the commission and the courts to be able to consider when deciding whether to approve a merger or acquisition, not just whether it meets safe-harbour criteria on market share.

Mr Mallard said petrol and banking were two other markets where mergers might have significant effects on competition and prices, but which would not be subject to scrutiny under the present threshold.

The test in the act is whether a merger or acquisition will create or strengthen dominance in a market.

The Government plans to replace the dominance test with the stronger Australian test of "substantial lessening of competition."

Adopting the language of the Australian law would allow a lot of case law from across the Tasman to be used, Mr Mallard said.

The Government also plans to amend the central provision against anti-competitive behaviour, section 36, which prohibits a dominant firm from using that position for specified anti-competitive purposes.

The threshold would be lowered from dominance to substantial market power, as in Australia.

But the Government is referring to the commerce select committee the question of how best to deal with the tricky question of evidence of anti-competitive purpose.

One proposal is to provide that purpose may be inferred from relevant conduct and circumstances.

The other is to reverse the normal burden of proof, but only in cases brought by the commission. If the commission accuses a firm of taking advantage of its substantial market power to exclude competition, it will be up to the accused firm to prove that was not its purpose.

Mr Mallard would not be drawn on what specific cases of anti-competitive behaviour, permitted under the present section 36, would be prohibited by the new version.

"Identifying cases now might prejudice the possibility of action under the law."