The commission released its findings last November, though Meridian only released a statement on the decision earlier this week.

The Wellington-based commission investigated a complaint by NGC and the Major Electricity Users Group (MEUG) that Meridian and Genesis, which both generate, wholesale and retail electricity, had used their market power to set high wholesale spot prices during the winter of 2001 and so cripple electricity retail newcomer On Energy.

In the latter stages of the 2001 winter, On Energy sold its retail business to Meridian and Genesis because it was losing substantial money having to buy electricity on the spot market at soaring prices, prices which were much higher than it was charging its 400,000-plus retail customers.

Meridian, Genesis and other generators were considered to have the power to set spot prices during the winter supply shortages. Also, most would have known On Energy's wholesale supply contract with Meridian expired at the end of May 2001, so leaving it significantly exposed to buying on the spot market after that, the report says.

However, On Energy was unable to increase its retail prices to cover the rising spot prices, as other electricity retailers were holding their prices and accepting its customers.

"The report concludes that neither Meridian nor Genesis took advantage of a substantial degree of market power with the purpose of eliminating On Energy from the electricity retail market."

The commission says evidence obtained from On Energy showed electricity hedges were available to the company at reasonable prices in late 2000 and early 2001 - before the cold, dry winter at prices below the long-run marginal cost of new generation. If On Energy had been fully hedged in the 2001 winter, it was likely that spot prices would still have increased as generators tried to get the best price for uncommitted electricity generation.

The report adds that the reasons Meridian provided for not conserving water earlier did not appear totally convincing. However, after executing a notice on Meridian to seek its offer documents strategy, the report says Meridian's strategy was a genuine response to declining lake levels and the need to set high prices to ensure that thermal generators would be dispatched in preference to hydro.

Meridian was also questioned about why it offered prices for spot electricity that were markedly higher from June 1, when the hedge contract with On Energy expired

Genesis used whatever market power it had to increase spot price during the winter of 2001, but there was no evidence that Genesis actively sought to acquire On Energy's North Island customers and On Energy did not have to sell them to Genesis, the report adds.

Meridian chief executive Keith Turner said the investigation had confirmed an earlier finding by the Market Surveillance Panel that On energy had the opportunity to acquire electricity hedges at reasonable prices, but had chosen not to do so.

Dr Turner said the winter of 2001 had provided many valuable lessons to the electricity market, and both customers and suppliers had learned a great deal from the experience. "It showed that the electricity market is capable of serving the country very well in an extreme situation."