NZ power firms reaped huge windfalls - regulator

WELLINGTON, May 21 (Reuters) - New Zealand power firms reaped extraordinary gains of more than NZ$4 billion ($2.4 billion) from consumers by exploiting their size and market structure, but they did not breach competition rules, a regulator said on Thursday.

The Commerce Commission investigated complaints of high prices and profits, a lack of competition and collusion among the generating and retailing companies.

It said the four biggest firms -- state-owned Meridian Energy, Mighty River Power and Genesis, and the listed Contact Energy (CEN.NZ) -- had major market power, especially in a "dry year" when hydro lake levels were low.

"Each of these companies has the ability and incentive unilaterally to exercise market power and increase wholesale prices during certain periods," Commission chair Mark Berry said in a statement.

The regulator said the power companies had earned an extra NZ$4.3 billion between 2001 and mid-2007 because of a lack of competition in the sector. It said price increases in dry periods had been well above increases in input costs.

New Zealand had two notably "dry" years in 2001 and 2003, when hydro lakes, which supply up to two-thirds of the country's power, were low, sending wholesale prices sharply higher.

The watchdog said the companies reaped around NZ$1.5 billion extra in each of those two years

"However, the commission concludes in the case of this investigation that the gentailers (power companies) are using that market power to maximise their profits in a purely legitimate way within the current market structure, design and rules," Berry said.

He said there was also no evidence of company collusion or other anti-competitive behaviour, although the fifth-biggest company, TrustPower Ltd (TPW.NZ), had been warned that it came close to breaking the rules.

No further action would be taken by the regulator, but the government is currently looking at the price of electricity, the security of supply and electricity market structures.

New Zealand's five main power generators dominate supplies to the business and retail sectors, but are prohibited from owning distribution companies. ($1=NZ$1.65) (Reporting by Gyles Beckford; Editing by Mark Bendeich)