The Commerce Commission today cleared Contact Energy Limited to acquire the gas retailing business of Enerco New Zealand Limited. The Commission's Decision includes a change in the way it views electricity markets.

Commissioner Dr Kate Brown said that in the case of Contact acquiring Enerco's gas retailing business, the markets of relevance are:

  • the national electricity retail market;
  • the North Island gas wholesale market for medium and large consumers; and
  • two retail markets encompassing sales of gas to small consumers in the Hawke's Bay and Horowhenua regions.

The Commission found that competition would remain in the national electricity retail market and in the North Island gas wholesale market, preventing Contact acquiring a dominant position in either.

The Commission concluded that Enerco is dominant in the relevant retail gas markets. The proposed acquisition would involve that dominance being transferred to Contact but with no strengthening occurring.

The Commerce Act prohibits business acquisitions that result in dominance being acquired or strengthened in any market. The Commerce Act does not prohibit what it describes as "bare transfer of market dominance", that is, business acquisitions that involve dominance being transferred to a new owner but not being strengthened.

National Electricity Retail Market

Dr Brown said that the increasing level of competition in electricity retailing that has followed the Electricity Industry Reform Act (EIR Act) has led the Commission to view electricity retailing as one, nation-wide, market.

Previously, the Commission's view had been that there was a nation-wide market for the, relatively few, larger consumers only, with smaller consumers in regional markets. Each regional market had been defined by the distribution network owned by the local power company.

Dr Brown said that the reasons for the increase in competition were:

  • the effect of the EIR Act separating electricity lines and supply businesses and so lowering barriers to new entry;
  • the emergence of significant new players to compete against incumbents in the market; and
  • the Government's stated commitment to ensuring that small electricity consumers benefit from competition and its expectation that 'deemed profiling' will be introduced (either by the industry or, if necessary, by itself) in the near future.

Deemed profiling is a way of enabling reconciliation of electricity sales amongst multiple retailers without having to measure, by meter, individual consumers' consumption every half-hour. Such metering costs have been a significant cause of preventing competition developing for small consumers - they made it uneconomical for new entrants to try to attract small consumers.

Deemed profiling uses estimates of how much electricity different consumers are likely to use. Periodically, these estimates are reconciled with actual usage. This system has much lower costs than constantly monitoring the electricity consumption of each consumer.

Public copies of the Commission's decision are available from its website www.comcom.govt.nz and from reception at its Wellington office, level 7 Landcorp House, 101 Lambton Quay.

Media contact: Commerce Act Manager Geoff Thorn

Phone work (04) 498 0958

Communications Officer Vincent Cholewa

Phone work (04) 498 0920

Commission media releases can be viewed on its web site www.comcom.govt.nz