The Australian Competition and Consumer Commission today announced its final determination on the third tranche of NSW electricity vesting contracts.
This follows the ACCC's draft determination issued in December 1998 and its pre-decision conference in February and April 1999. The ACCC also held extensive consultations and discussions with many market participants during 1999.
The ACCC has decided to authorise the contracts subject to the following conditions: the Type 1 contract strike prices must be adjusted to a weighted average outcome no higher than $40MWh. the Type 2 contracts must be amended by removing the binary floor, adjusting the price caps to levels consistent with the Type 1 price structure and setting a market-based option fee for the retailers. the term of the vesting contracts must cease by 31 December 2000.
"In revising its draft determination, the ACCC had to weigh up a range of competing factors and arguments that were strongly presented by different participants in the market as well by NSW Treasury," ACCC Chairman, Professor Allan Fels said.
These included such issues: new entry costs, current market prices and the prices for electricity expected over the next few years, as benchmarks for efficient contract prices; the impact of reduced strike prices on the achievement of public benefits; a shorter term for the contracts, consistent with arrangements in other States.
"The ACCC believes that a weighted average price of $40MWh for the main Type 1 contracts is closer to an efficient price than the prices argued by NSW. However, the ACCC acknowledged that there were a range of public benefits associated with the ongoing reform of the NSW electricity industry and the determination is a recognition of those public benefits.
"Additionally, the ACCC has responded to the dissatisfaction that market participants had with the binary floor in the Type 2 contracts and, in agreement with NSW Treasury, has decided on a price cap for that portion of the vesting load".
The ACCC has extended the current interim authorisation to 30 September 1999 to enable the NSW participants to implement the conditions in the final determination.
This follows the ACCC's draft determination issued in December 1998 and its pre-decision conference in February and April 1999. The ACCC also held extensive consultations and discussions with many market participants during 1999.
The ACCC has decided to authorise the contracts subject to the following conditions: the Type 1 contract strike prices must be adjusted to a weighted average outcome no higher than $40MWh. the Type 2 contracts must be amended by removing the binary floor, adjusting the price caps to levels consistent with the Type 1 price structure and setting a market-based option fee for the retailers. the term of the vesting contracts must cease by 31 December 2000.
"In revising its draft determination, the ACCC had to weigh up a range of competing factors and arguments that were strongly presented by different participants in the market as well by NSW Treasury," ACCC Chairman, Professor Allan Fels said.
These included such issues: new entry costs, current market prices and the prices for electricity expected over the next few years, as benchmarks for efficient contract prices; the impact of reduced strike prices on the achievement of public benefits; a shorter term for the contracts, consistent with arrangements in other States.
"The ACCC believes that a weighted average price of $40MWh for the main Type 1 contracts is closer to an efficient price than the prices argued by NSW. However, the ACCC acknowledged that there were a range of public benefits associated with the ongoing reform of the NSW electricity industry and the determination is a recognition of those public benefits.
"Additionally, the ACCC has responded to the dissatisfaction that market participants had with the binary floor in the Type 2 contracts and, in agreement with NSW Treasury, has decided on a price cap for that portion of the vesting load".
The ACCC has extended the current interim authorisation to 30 September 1999 to enable the NSW participants to implement the conditions in the final determination.