The Commerce Commission has released a final decision today authorising a pricing arrangement for the wholesale electricity market for the period up to September 30.
ECNZ, Contact Energy and the Electricity Market Company (EMCO) applied for authorisation of the interim pricing arrangement proposed for the interim period until a competitive wholesale market comes into effect on October 1. The Commission considers the arrangement amounts to price fixing in terms of the Commerce Act and therefore requires authorisation.
The Act prohibits anti-competitive arrangements, but allows them to be authorised if it can be shown that their public benefits outweigh detriments.
Commission Chairman Dr Alan Bollard said that the main public benefit of the interim pricing arrangement was that it would allow the market participants to practise for the introduction of the competitive wholesale market, and so lessen the costs associated with the establishment of such a market.
The Commission also considered it possible that the arrangement could assist in the ultimate design of the final market and there could be some efficiency gains from limited competition between ECNZ and Contact Energy for the supply of electricity to the market in the interim period.
"The Commission has not identified any significant detriments attributable to the interim pricing arrangement" Dr Bollard said. "It considers that, without authorisation it would be unlikely that Contact Energy would be able to supply electricity to the wholesale market during the interim period. It has concluded that the benefits outweigh detriments and has authorised the arrangement."
The applicants had argued that the interim pricing arrangement did not need authorisation because it was outside the Commerce Act definition of price fixing.
Dr Bollard said that the Commission did not accept this argument.
"It is clear this is an arrangement between competitors" he said. "Potential competitors have developed a formula or system for determining the price of electricity. Such an arrangement would be prohibited by the Commerce Act if it was not authorised."
In a related matter, ECNZ and Contact Energy had applied to the Commission for authorisation of an arrangement under which Contact Energy would supply all of its electricity to ECNZ until September 30.
The Commission concluded that this arrangement would not lessen competition as without the arrangement the two parties would not be competing in this period in any event. Accordingly the Commission declined to grant an authorisation.
"The Commission has said this arrangement is not anti-competitive, therefore it cannot be authorised," Dr Bollard said.
He also said that the Commission's decisions relate solely to interim arrangements and take into account that they will be in force for only a very limited time. To emphasise this point, the Commission has specified that its authorisation of the interim pricing arrangement will expire on September 30.
Media contact: Communications Officer Vincent Cholewa
