Implications for the National Electricity Market of NSW Generation Options

Industry Commission Study

This study concluded with the completion of the report, Does Pacific Power Have Market Power: A Report on the Implications for the National Electricity Market of New South Wales Generation Options, which was released on 14 August 1995.

About the Study

The Industry Commission reviewed of electricity generation industry in New South Wales to determine the implications for competition of the market power that could be exercised by Pacific Power operating as a single entity. In undertaking this review, the Industry Commission considered the consistency of Pacific Power’s market position in the electricity generation sector with:

the principles for structural reform of public monopolies contained in the Competition Principles Agreement; and
the operation of a competitive national electricity market.

In relation to its assessment of market power in the electricity generation industry, the review examined (but without limitation) the ability of Pacific Power to:

set prices for the market for significant periods of time to increase revenue or profit without engendering actions by customers or competitors which cause it to lose market share;
force an allocation of capacity onto the market so that more efficient plant is kept idle and less efficient plant operates for significant periods of time;
drive out competitors that are more efficient; and
prevent entry of new capacity that is more efficient.

Furthermore the review assessed whether likely patterns of usage and capacity constraints of major interconnectors would contribute to the extent of Pacific Power’s market power in relation to consumers in New South Wales or relevant regions within the State. Also considered were the implications for electricity consumers and competition of alternative structures of the electricity generation industry in New South Wales, including the trade-off between benefits from a competitive generation sector and the costs association with the possible loss of economies of scale and scope.