Australian power companies accused of market abuse

25 Feb 2002 – Australia’s electricity market regulator has accused electricity generators of abusing their market position to force users to pay hundreds of millions extra on their power bills.

The National Electricity Code Administrator (NECA) has called for changes to market rules to curb a practice known as rebidding. Rebidding allows generators changing their bids to the national electricity market at the last minute. Critics claim that such strategic bidding behaviour during periods of high demand could lead to significant increases in electricity spot prices.

NECA managing director Stephen Kelly said there is scope for “windfalls” of many millions of dollars to individual companies in illicit rebidding. “Independent analysts have put the direct costs in terms of higher electricity prices and the collective cost to Australian business and the broader community from such actions at between A$500 m ($256m) and $1bn ($512m) a year,” Mr Kelly told delegates at a power conference in Sydney. “This practice has got to stop, and it must stop as soon as possible.”

Mr Kelly said Australia was the only country with an active electricity market that has no means to tackle abuse of market power. Mr Kelly said he would ask an Australian Competition and Consumer Commission roundtable in Melbourne tomorrow to consider several reforms for electricity generation. These changes to would require generators to bid in good faith and prohibit bids or rebids that would prejudice the efficient, competitive or reliable operation of the market. “There is not a `do nothing’ option on the table. This would only continue to hurt customers,” Mr Kelly said.

But Electricity Supply Association managing director Keith Orchison rejected suggestions that power generators were enjoying a windfall. He said the national electricity market needed viewed as a whole and it wasn’t helpful to focus on particular aspects of it. “Rebidding is a legitimate part of the market,” said Mr Orchison. “Whether it’s been used properly has been a matter of independent review before and there has been no finding that (rebidding) is being abused.”

Standard & Poor’s associate director of corporate and infrastructure ratings Mark Legge said rebidding was a key component to the smooth running of the electricity market as it delivered flexibility to power generators. “It gives them the ability to respond to the changing market or climate conditions.” Mr Legge said if the practice of rebidding was severely restricted this could potentially scare off investors in the power generation sector. “You want price signals to be clean and clear and allowed to be responded to by the various players,” said Mr Legge.

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