Power companies 'overcharged'

A report finding power generators have gouged more than $4 billion from consumers by using their market dominance to overcharge is welcome and "somewhat overdue", Network Tasman's chairman says.

The study by market watchdog the Commerce Commission, which is to be released tomorrow, is not expected to conclude the actions were illegal, so no prosecutions are likely.

But it will find that the big four electricity generators state-owned Meridian Energy, Genesis and Mighty River Power and privately owned Contact Energy effectively used their market power to maximise profits, including withholding power at peak times.

That saw New Zealanders pay an average $1000 each more for power over a six-year period.

Network Tasman chairman Ian Kearney said the electricity lines company had commented on the "somewhat excessive rises in electricity retail prices" for several years.

The restraint that Network Tasman had exercised by keeping increases to a minimum had been consumed by electricity retailers putting up their prices.

Mr Kearney said Network Tasman had decided this year to keep its 2009 line prices at March 2008 levels, out of concern about the effect price rises were having on customers.

While he did not have the exact figures this morning, Mr Kearney believed that while prices for transmission and distribution had increased by about 2 per cent over the past five or so years, retail prices had gone up by an average of 6 per cent to 8 per cent.

"There is no real competition in the retail market and they all have similar pricing and when one of them puts up their prices the others put their prices up."

The report will pose a major dilemma for the Government and Energy Minister Gerry Brownlee and could lead to the first major overhaul of the market model, first set up under National in the 1990s.

Mr Brownlee has commissioned his own separate review into the price of electricity, security of supply, the electricity market and overlapping roles in the industry.

Industry sources said the generators strongly rejected the methodology of the commission's report.

It considered theoretical pricing in a perfect market, "and this is not a perfect market", one source said.

The report includes analysis by a leading expert on energy markets, California-based Professor Frank Wolak, of Stanford University.

It is understood he calculated companies' prices against what they should have charged and concluded they had overcharged by at least $4b.

He used data from 2001 to 2007, and found the worst cases of over-pricing occurred during winter power crises in 2001, 2003 and 2006.

Power prices rose by 72 per cent between 2000 and 2008. Over the same period inflation went up only 29 per cent.

The report was sparked in 2005 by widespread claims of overpricing, high company profits and a lack of competition.

It has taken four years to produce and cost about $2 million.

- © Fairfax NZ News