Australia: Power Rip-Off Exposed

Publisher Name: 
The Age

The Federal Court yesterday fined three electricity transformer companies and senior executives $15 million after they were found guilty of engaging in anti-competitive behaviour, including collusion and price fixing, which has inflated the cost of electricity.

The fines, resulting from two cases brought by the Australian Competition and Consumer Commission, were a record for individual managing directors, ACCC chairman Allan Fels said yesterday.

"This is substantial, sustained secret, senior collusion that affected the price everyone pays for electricity: consumers, business large and small, people in city and country areas," he said.

Federal Court Justice Ray Finkelstein fined Schneider Electric (Australia) $7 million, Wilson Transformer Company $4 million, and AW Tyree Transformers $3.5 million for breaches of the Trade Practices Act.

He also ordered individual fines of up to $225,000 for the companies' senior executives.

A fourth company, Alstom Australia, was fined $7 million on April 5 last year for price fixing and market sharing in power transformers.

ABB Transmission and Distribution, one of the industry's biggest players, is still contesting allegations against it in court. But ABB executive David Toogood was yesterday fined $35,000.

Professor Fels said the companies fined formed a covert cartel and colluded to fix the outcome of government and private tenders to supply electricity transformers worth $160 million annually.

The transformers regulate electricity voltages in power stations and the electricity grid.

The ACCC's case targeted anti-competitive behaviour in the power transformer and distribution transformer markets. The illegal activities took place between 1993 and 1999 with Wilson Transformer Company admitting to collusion as far back as the 1980s.

Professor Fels estimated the cartel, which controlled almost the entire market in transformers, had illegally gained tens of millions of dollars by pushing up the prices paid by electricity companies for equipment. Consumers ultimately paid with higher prices, he said.

Power groups affected by the illegal activities included the State Electricity Commission of Victoria, Eastern Energy, United Energy, and other power utility companies across Australia.

The ACCC was tipped off about the collusion in November, 1998, via an anonymous e-mail from a whistleblower formerly employed in the electricity industry in Victoria.

After gathering evidence from industry insiders, the ACCC confronted company executives with its evidence. The companies admitted their unlawful anti-competitive behaviour, Professor Fels said.

"Secret meetings to rig the outcomes of multi-million-dollar contracts took place in hotel rooms, airport lounges and even private residences in various part of Australia," Professor Fels said. There were also a series of meetings in hotels and clubs to allocate tenders.

From 1993 to 1995, Alstom and Wilson Transformer Company agreed to take 28 per cent of the power transformer market each, with ABB Power Transmission taking 44 per cent. They also agreed who would tender the winning bid, the ACCC alleged.

Professor Fels yesterday called for the law to be changed to impose jail terms on chief executives who engaged in serious breaches of the law as a deterrent to others.

"Collusion is secret. It's a form of theft from the public and other businesses. It is totally unethical," he said, likening it to other forms of white-collar crime.

Robert Wilson, chief executive of Wilson Transformer Company, admitted that his company had "done something illegal," but he said it had not defrauded or disadvantaged its customers.

He said the arrangements began in the early 1990s when his industry was "struggling to stay alive".

They involved an "allocation of work" but "there was no price escalation or gouging. Nor was there evidence or proof of that in the case," Mr Wilson said.

Professor Fels' suggestion that there was a cost to the industry and electricity consumers was "unfounded and incorrect," he said.

Under these circumstances Mr Wilson said he felt the penalties imposed on his company were "excessive".

He refused to comment on his $150,000 fine.

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