The competition watchdog has ruled against a proposal by NSW Government-owned electricity generators and future private stakeholders to utilise a co-insurance scheme.

The application stems from a NSW Energy Reform Strategy proposal to disaggregate three NSW electricity portfolios into five “gentrader” bundles.

Under this arrangement the ownership of the power stations is retained by the NSW Government and the contractual rights to trade the electricity produced would be held by privately owned gentraders.

The Australian Competition and Consumer Commission’s (ACCC) draft decision effectively prevents gentraders from compensating each other in the event an outage causes the level of electricity produced to fall below a pre-set level.

ACCC Chairman Graeme Samuel says the commission “is not satisfied that the co-insurance arrangement is necessary for the reforms to be implemented or for the benefits of the reforms to be realised”.

Instead, the ACCC has pointed to “a number of alternative risk management bundles,” including traded derivatives and insurance products.

It says the proposed model could be detrimental to the public for a number of reasons including the inefficient alteration of gentrader contracting behaviour.