Energy companies avoid prosecution over alleged bid-rigging

The Commerce Commission has delivered a warning to two NZX-listed energy companies allegedly in cohorts to block out other bidders for a Nelson power company six years ago.

The decision was the last outstanding issue in the Commission’s electricity market investigation, published in May 2009.

In 2003, TrustPower Limited (NZX:TPW) acquired the Cobb hydroelectric power station (from NGC Holdings Limited) for $92.5 million.

But a Commerce Commission investigation into possible bid-rigging discovered Contact Energy Limited (NZX:CEN) and TrustPower suggested the two companies would not bid against each other.

The two companies avoided prosecution only because Contact’s approach to TrustPower was mainly to negotiate a normal commercial hedging arrangement.

The suggestions were short-lived and did not affect the bidding process in the end, the Commission said.

Initially, Contact approached TrustPower to consider a back-to-back hedge arrangement for the supply of electricity depending on which company’s bid was successful.

But “inappropriate references” were made to the two companies not bidding against each other to push up the price for the station.

Commerce Commission chair Mark Berry said that while the Commission recognised the value hedging contracts brought to the electricity market, in this case, it went too far.

“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.”

The Commission said it considered a warning appropriate, given discussions between the parties was limited and did not eventuate into any rigging.

But if further allegations were made in the future, this case would be taken into account, it said.