Competition an illusion for power companies

By Mark Reynolds

Between the lines

In truly contestable markets, competitors swoop down, vulture-like, when rivals stumble. But that has not been the case for the supposedly liberated retail electricity market, where opponents of TransAlta New Zealand have declined to prey on the company's move to increase power prices for 530,000 customers.

"Our company has a policy of not criticising what its opponents are doing," was one competitor's anonymous reaction to the price hikes.

Such a wimpish reaction would have been understandable if the rival also intended to raise prices. But that, apparently, was not the case.

"Our position is that it is not prudent to get into a frenzy while the market is still developing," the secretive source explained. "We are not going to aggressively target [TransAlta] customers when we don't really know if there is any value in getting some of them as customers."

What he meant was that Commerce and Enterprise Minister Max Bradford's much-vaunted competitive retail electricity market was illusory - at least for now.

"Having an open and competitive market is all very well, but what if no one actually wants some of the customers in the market?" the spokesman asked.

"In the electricity industry, there are some customers where margins are slim, or who for various reasons are difficult to service. Because we are still getting to know the market, we don't know who those problem customers are going to be. So if someone wants to move suppliers, we are not automatically going to go out and take them," he said.

And so, there emerged yesterday a bizarre situation whereby a third party advertised for electricity customers to switch to rivals of TransAlta.

That third party was Orion, a company owned by Christchurch local authorities. Orion owns the network of power lines in the Canterbury region through which TransAlta - and any other electricity supplier that so chooses - transmits its power.

Orion paid for newspaper advertisements to tell TransAlta customers of competing power suppliers in the Canterbury region. It did so because it was feeling the heat from its former customers. (Orion, when called SouthPower, sold its Christchurch retail customers to TransAlta).

Orion will make money on its power lines no matter who supplies electricity in Canterbury. Its decision to pay for the advertisements should therefore be objected to by Orion's owners.

But the important question is: Have the recent changes to electricity laws created a truly competitive market?

According to power suppliers, the answer is, "yes, but not quite yet."
The missing factor in the market is the free trade of information about customers, including the consumption patterns of small customers expensive to monitor.

Until it is readily available, the power industry cannot fully compete.