The electricity industry is facing significant Commerce and Fair Trading Act issues, some of which are before the courts now, while others will hopefully be resolved without court action Commerce Commission Chairman Dr Alan Bollard said today.
Dr Bollard was speaking in Wellington at an electricity industry conference.
The Commission has previously warned power companies with domestic supply contracts that they risk breaching the Fair Trading Act if their contracts mislead people about their rights under the Consumer Guarantees Act.
There has been some disagreement in the industry as to whether electricity is covered by the law in this way, and the Electricity Supply Association of New Zealand has asked the High Court for a declaratory judgment.
Dr Bollard said that if the Court finds that the Commission's view is correct, then the Commission expects all transgressing power companies to amend their domestic contracts. Any companies which do not will be investigated and may be prosecuted under the Fair Trading Act.
The Commission is already taking court action against Southpower alleging it behaved anti-competitively and breached the Commerce Act in the way it tried to limit other companies' access to its network.
An issue that has already been through the High Court and the Court of Appeal is the Commission's approach to business acquisitions in the electricity industry. Both Courts have upheld the Commission's approach.
There had also been concerns that the proposed fees to be charged by the Electricity Market Company (EMCO) for participation in the New Zealand Electricity Market favoured incumbent power companies over possible competitors. After the Commission began investigating, the fee structure was changed and now appears to have a more even competitive balance.
Dr Bollard warned that no matter what changes are made in the industry, line businesses will remain monopolies. It will not be economically viable for competitors to duplicate networks of power lines.
"I consider that it is the lack of competition in the lines business which has created greatest potential for consumer harm in the past, and that future reforms which might be introduced will only ameliorate that situation to an extent, not cure it," he said.
If these monopoly powers are abused, then the Act does allow for the Government to impose price controls.
"It may be that corporate memories are fading as to what working under heavy handed regulation can mean," Dr Bollard said. "As some in the downstream industry may be flirting with a re-introduction of heavy handed regulation I thought I might note what this means in Victoria.
"The operations of power companies are supervised by, not only the Australian equivalent of the Commerce Commission (ACCC), but also by the Office of the Regulator General (which determines electricity pricing), the National Electricity Code Administrator, the National Electricity Market Company, the Victorian Power Exchange, the Chief Electrical Inspector and the Electricity Industry Ombudsman."
Australians are beginning to comment that their electricity industry might make better investment decisions if development of networks was done at the financial risk of the companies involved, rather than being centrally planned by regulators with regulated rates of return. It is also being suggested that the Australian industry would work better if power company managers focused less on the regulatory regime and its consequences, and more on innovation and developing their businesses.
Competition in New Zealand's electricity industry is not perfect, but given the natural monopoly of line businesses, perfect competition is impossible in any country's electricity industry.
Comparisons with perfect competition are pointless. Comparisons with other countries regulations are not. And compared to other countries, New Zealand is doing reasonably well.
Copies of Dr Bollard's speech are available from reception at the Commission's Wellington office, 7 floor, Landcorp House, 101 Lambton Quay.
Media contact: Communications Officer Vincent Cholewa
