The Commerce Commission and Southpower Limited have settled their court action today, with Southpower no longer contesting the Commission's allegations that it breached the Commerce Act, agreeing to restructure its businesses, and paying $450,000 costs to the Commission.

Commissioner Terry Stapleton (Chairman of the Commission's Energy Division) said that the Commission is very pleased with the result.

"The settlement resolves the case with certainty now, without the costs of a lengthy trial," Mr Stapleton said.

In the settlement the Commission acknowledged that Southpower's breaches occurred at an early stage of the industry's deregulation and that there was no intention to breach the Act. The Commission has agreed not to ask the courts to impose penalties on Southpower.

A key to developing competition in the retail electricity markets is to clearly separate power companies' monopoly businesses from contestable ones.

The restructuring of Southpower's businesses is intended to:

  • "ring fence", and reduce as far as possible the scope of, Southpower's monopoly network business;
  • organise Southpower's contestable businesses as separate corporate entities to help effective competition develop in those markets; and
  • make it easier for Southpower to ensure, and others to monitor, that Southpower treats its competitors in the same ways that it treats its own businesses.

The restructuring that Southpower has agreed to undertake in accordance with the settlement will assist in fostering the development of effective competition in the supply of electricity in the distribution area covered by Southpower's network.

The Commission began court action on March 4 last year. It alleged that Southpower acted anti-competitively in the way it tried to prevent competitors selling electricity to consumers in Christchurch.

The Commission alleged that Southpower overstated the costs of its monopoly network business, understated the costs of its competitive electricity sales, and imposed excessive access charges on competitors that its own electricity sales business did not have to pay.

The Commission alleged that Southpower breached sections 27 and 36 of the Commerce Act. Section 27 prohibits contracts, arrangements or understandings that substantially lessen competition. Section 36 prohibits a dominant market position being used for an anti-competitive purpose.

Summary of settlement

  1. Southpower will not contest the Commission's allegation that aspects of the terms of access which Southpower formulated in 1994 for competing energy traders breached the Commerce Act.
  2. Southpower will create three separate businesses: a network business, an electricity retailing business and a business providing billing and metering services.

    - The businesses will operate as separate companies. Southpower will establish a holding company to own the businesses in such a way that they operate independently of each other.

    - The businesses will treat each other and independent electricity retailers in the same ways.

    - The network business will offer the same forms of contracts to independent electricity retailers as it does to Southpower's electricity retailing business.

    - Overall corporate costs incurred by Southpower will be allocated to the three businesses on the basis that the network business is the core business.

  3. If the restructuring is completed in accordance with the settlement by September 30, then the Commission will withdraw its court action.
  4. The Commission acknowledges that Southpower's breaches occurred at an early stage of the industry's transition from regulated monopolies to competitive enterprises and that it was not the intention of Southpower to breach the Act. The Commission also acknowledges that Southpower's proposed restructuring should, once implemented, assist in fostering the development of effective competition in areas where competition is possible.
  5. The Commission does not seek penalties to be imposed by the court.
  6. Southpower will pay the Commission $450,000 towards its costs.

Copies of the settlement are available from reception at the Commission's Wellington office, level 7, Landcorp House, 101 Lambton Quay.

Media contact: General Manager John Feil

Phone work (04) 498 0963

Communications Officer Vincent Cholewa

Phone work (04) 498 0920

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