ComCom warns Contact, Trustpower

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The Commerce Commission has issued a formal warning to Contact Energy and TrustPower following an investigation into possible bid-rigging behaviour.

The commission today said its investigation found communications between Contact and TrustPower over the purchase in 2002 of the Cobb hydroelectric power station, near Nelson, owned by NGC Holdings.

Contact and TrustPower were alleged to have tried to engage in anti-competitive conduct during the purchase by tender of the power station, the commission said.

Contact approached TrustPower to consider a back-to-back hedge arrangement for the supply of electricity from Cobb, depending on which company was successful in the auction.

During initial discussions, inappropriate references appear to have been made along the lines that Contact and TrustPower not bid against each other and as a result push up the price for Cobb, the commission said.

In response to the commission's announcement, Contact said the discussions in question focused on addressing transmission constraints in the top of the South Island.

"The discussions were aimed at limiting potential for a monopoly electricity supply to develop behind that transmission constraint and, as such, were pro-competitive," Contact said.

"There was accordingly no intention to breach the Commerce Act and the company supported the closure of the investigation."

Commission chairman Mark Berry said it recognised the value hedging contracts brought to the electricity market.

But in this case, the communications between Contact and TrustPower went too far and initially were also aimed at avoiding the parties bidding competitively for Cobb, Dr Berry said.

"The integrity of auction and bidding arrangements underpin competitive markets. Any attempt to undermine this represents a significant departure from expected and lawful commercial practice.

"Bid rigging of this kind is deemed to be unlawful under the Commerce Act."

In deciding to issue a warning on this matter rather than prosecute, the commission had taken into account the fact that the approach by Contact to TrustPower was made in the context of a negotiation for a normal commercial hedging arrangement and that was the principal objective.

The commission said it also considered the fact the initial attempt was very short-lived and did not in the end appear to have affected the bidding behaviour of the parties in the auction process and NGC was unlikely to have been detrimentally affected.

The behaviour of the parties would have provided sufficient evidence of a likely contravention of the Commerce Act, the commission said.

But a warning to the parties was appropriate given the limited nature of the discussions and as the negotiations were principally aimed at achieving normal hedging arrangements.

If further allegations of behaviour that may contravene the Commerce Act by either party were made in the future, the commission would take the warning into account.

The warning was the final remaining issue relevant to the commission's electricity market investigation published in May.

NZPA