The Australian Competition and Consumer Commission's energy arm, the Australian Energy Regulator, has castigated the electricity market regulator for opening the door to continued manipulation of power prices as a result of weak analysis of market competition.
In a recent draft decision, the Australian Energy Market Commission denied there had been price manipulation in the national electricity market due to excess market power.
A complaint claiming excessive power particularly in South Australia was lodged with the AEMC last year, although cases may have occurred in Tasmania and NSW since dominant electricity generators in those regions are able to force up wholesale prices.
In a recent draft report, the AEMC said competition was sufficient to prevent generators from using undue market power.
Yet, in an unusually strong rebuke, the AER slammed the AEMC for the poor quality of its analysis, claiming it used too narrow an approach which failed to recognise that market power could exist in parts of the electricity market.
Wholesale electricity prices in South Australia in particular have been high for several years, the AER argued in a submission to the AEMC. ''The AER believes this indicates that there is a problem with substantial market power,'' it noted.
Claims of undue market power were made last week in the NSW market as well, after Macquarie Generation withdrew capacity on successive days, forcing up wholesale prices.
As a result, the AER argued a broader framework should be adopted by the AEMC in studying claims of market abuse ''such as that which exists under a competition/antitrust law framework''.
In particular, the specific bidding behaviour of individual generators needed to be looked at, and how their behaviour influenced average prices.
In detailed analysis, the AER argued average wholesale electricity prices in South Australia in 2007-08 were the highest in the national market since it started a decade earlier. In 2009-10, prices in South Australia were the second highest on record, while in 2008-09, they were the third highest.
Even so, the AEMC failed to consider that the consistently high prices in South Australia ''may reflect the exercise of generator market power'', the AER claimed.
The AEMC did not ''adequately take account of the significant role that economic withholding by AGL played in exacerbating the high prices observed in South Australia over a number of years''.
AGL holds an estimated 40 per cent share of the South Australian market, putting it in a position to exercise market power, the AER claimed.
Separately, South Australia's Minister for Mineral Resources and Energy, Tom Koutsantonis, said since research for the AEMC found AGL had repeatedly withheld supply to drive up prices, continuing monitoring of prices was needed.