Wellington, May 21 NZPA - Power companies used their market dominance to overcharge customers by more than $4 billion, but did it legally so won't be facing charges.

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

Trustpower was warned over an alleged attempt at a 2004 meeting between its and Genesis executives to form anti-competitive arrangement.

"While it appears no anti-competitive agreement was ever reached in this case there may, on the commission's assessment, have been an attempt to enter into such an agreement and a warning has been issued to Trustpower...not to Genesis," Mr Berry said.

The commission was continuing to investigate a single event but would not give details.

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.

Fourteen complaints were fully investigated. One complaint was that generators gave large industrial customers below cost prices to prevent entry of competitive generators. It was not upheld because wholesale prices were higher than costs.

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

"However, the commission concludes in the case of this investigation that 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 an anti-competitive behaviour or attempts to hinder competitors.

The commission used international expert Professor Frank Wolak of Stanford University to analyse wholesale electricity market from January 2001 to July 2007.

He estimated wholesale prices charged over the period resulted in an extra $4.3 billion in earnings to all 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.

"Less competition was especially evident in the wholesale market during the dry years of 2001 and 2003, when additional earnings attributable to the exercise of market power are estimated at $1.5 billion in each of those years."

Dr Berry said it was difficult to estimate the extent to which peaks in wholesale prices were passed on to consumers but retail prices followed a strongly rising trend.

"We believe some significant pass-through of the wholesale market power rents to retail prices has occurred but it has not been necessary in the context of this investigation for the commission to analyse or investigate this matter further," Dr Berry said.

It would be more appropriate for other parties to consider issues raised by its investigation about the market, he said.

The commission has the power to hold an inquiry into price control which would allow for price control regulation but Dr Berry said it may not be that useful.

Structural changes or modifications to the market design or rules might be better "than the more heavy-handed approach of price cap regulation".

Those issues could be looked at by Government, he said.

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

A spokesman for Mr Brownlee said the commission's report could be included as part of the minister's review.

Dr Berry said the commission would consider whether a further inquiry was needed after the ministerial review was completed.

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

Three of the companies declined interviews but may issue statements later.

Meridian spokesman Alan Seay told Radio New Zealand the company would examine the report, but did not believe it reflected reality.

"For example during the dry winters of 2001, 2003, and 2005 Meridian actually lost a lot of money.

"We had low hydro lakes and we weren't able to generate. We were having to buy power from other generators so the suggestion that we somehow exploited the situation in those years to gouge profits simply doesn't add up."

Mr Seay said when lakes are dry: "it does hurt us very badly".

(2ND-N/L FOLLOWING BROWNLEE PRESSER)

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