Gerry Brownlee

Wellington, May 21 NZPA - Energy Minister Gerry Brownlee says power companies should not put up prices this winter, after overcharging customers by more than $4 billion.

"I am saying it would be an audacious act on the part of any power company to raise electricity prices while they've got this sort of allegation hanging out there," Mr Brownlee said.

A Commerce Commission report, released by chairman Mark Berry today, found the four largest electricity generator-retailers -- listed company Contact, and state-owned enterprises Genesis, Meridian and Mighty River Power -- had not broken the law but used the system to charge high prices.

The companies held substantial market power particularly during dry years and price increases were higher than costs.

"However...the (companies) are using that market power to maximise their profits in a purely legitimate way within the current market structure, design and rules."

There was no evidence of anti-competitive behaviour or attempts to hinder competitors but Trustpower was warned over an alleged attempt at a 2004 meeting between its and Genesis executives to form anti-competitive arrangement.

The commission started its investigation into monopoly and collusion provisions of the Commerce Act in late 2005 after complaints about high electricity prices, large company profits, a perceived low level of competitive activity and allegations of anti-competitive conduct.

Power prices rose by 72 percent between 2000 and 2008 while inflation went up only 29 percent.

Analysis by international expert Professor Frank Wolak of Stanford University of found prices charged in the wholesale electricity market from January 2001 to July 2007 resulted in an extra $4.3b in earnings to generators over those that they would have earned under competitive conditions.

On average wholesale prices were 18 percent higher than they would have been if the wholesale market had been more competitive, and the companies had not been able to exert market power.

Mr Berry said the commission believed a "significant" portion was passed onto retail consumers.

Mr Brownlee has already set up a ministerial review of the electricity sector backed by a technical advisory group headed by Brent Layton.

Mr Brownlee said he expected the review to report back some changes in September, but difficult issues would take longer.

"Quite clearly there are flaws with the way electricity is marketed in New Zealand that lead to perverse results demonstrated in this report," he told reporters.

"This is a situation that cannot continue."

Everything was on the table for the review including price capping, market structure and design, and even how the state-owned companies operated.

Initial terms of reference left out ownership and governance.

Mr Brownlee today said no assets would be sold but "you need to be generous in assessing what governance and ownership means".

Generator-retailers should cooperate with any redesign arrangements, he said.

"There is no room at all for electricity price rises while this matter is under consideration."

He had questions around whether concerns over security of supply were real, and was also interested in hearing what the committee had to say about companies being both generators and retailers.

He would not order the commission to conduct a further inquiry into price control, saying the committee could make faster progress.

Mr Brownlee did not think there was a problem with the Commerce Act and problems were around the use of market power and the structure.

He accepted methods used in the report could be contested but said arguing over the details would be a "pointless scrap" considering no prosecutions were being taken.