Why our biggest power companies should be broken up (and why they shouldn't) - Power to the People, part 4
These days Bridges is leading the charge.
'Gentailers come up with all manner of clever explanations from high-paying executives about all of this,' the chief executive of the Auckland Business Chamber and former National Party leader told the Herald.
'But as we lurch from crisis to crisis, they are ruling the roost more than ever.'
The chamber was a co-signatory of an open letter to the Prime Minister this month calling for market reform.
It's the latest in a growing list of public complaints by influential business leaders, politicians, and other campaigners, who say the electricity market is not working for people.
Households are now feeling the pain along with businesses, as higher transmission charges drive a 10.4% increase in power bills.
Consumer NZ's most recent quarterly sentiment survey in April showed 35% of people ranked the cost of energy as a top-three financial concern, up from 21% last April.
The same survey found one in five households have had difficulty paying their power bill in the last year.
Many prominent critics, including several smaller retailers, claim the prices are high because our four biggest companies control both the generation and the sale of electricity. Most have suggested breaking up the gentailers as the way to fix it.
'A cynical tactic' - the case for change
Under the current system, the gentailers sell the electricity they generate to their retail arms at an Internal Transfer Price (ITP) before the remaining electricity is sold to retailers for spot (floating) or hedged (pre-agreed) prices.
In 2022, Flick - which has recently been bought by Meridian - started a petition to split up the gentailers, saying the Internal Transfer Prices gentailers set for their retail divisions were artificially lower because they 'don't include the same costs and risks an independent retailer faces'.
Flick said at the time: 'Essentially, gentailers are leveraging their vertically-integrated position to benefit from low electricity prices acquired through inherited assets.'
Simon Bridges, CEO of the Auckland Regional Chamber of Commerce, a co-signatory of an open letter to the Prime Minister this month calling for electricity market reform. Photo / Dean Purcell
The open letter that Bridges signed to Prime Minister Christopher Luxon suggested a range of reforms, which could include splitting the gentailers into separate generation and retail companies.
'When a handful of companies control both generation and retail supply, the competitive pressures that should attract new investors and drive innovation, efficiency, and fair pricing are severely diminished,' said the letter, which was also signed by the Employers' and Manufacturers' Association, the Northern Infrastructure Forum, Consumer NZ and four other independent power companies, Pulse Energy Alliance, Octopus Energy, 2degrees and Electric Kiwi.
When advocacy group Common Grace Aotearoa asked every power provider what initiatives they were taking to curb energy hardship, most pointed to their philanthropic donations and support programmes.
Two companies, though, said the issue went beyond each provider, and only market reform would get to the root of high prices.
Switch Utilities, owned by 2degrees, said: 'We believe that the real issue is wider than those in immediate hardship. All Kiwis are paying too much for power, and we are strongly championing reform to the electricity market which will deliver greater competition and more affordable electricity.'
Electric Kiwi said gentailers' dominance was keeping wholesale power prices artificially high.
'Weʼve long said that the root cause of high-power prices, a key driver energy hardship, is the structure of New Zealandʼs electricity market.
'The dominance of the big gentailers allows wholesale prices to remain artificially high. Itʼs a cynical tactic that is harming New Zealand. We are trying to change that.'
While the smaller power companies have an obvious commercial motive in attacking gentailers' dominance, many other politicians and business groups have taken a similar stance.
The EA says evidence that gentailers are using market power 'is not well defined, [but] industry consultation has not yielded any evidence to contradict our view that the status quo may be stifling competition'.
A review of new regulations by NZIER for the Major Electricity Users Group said gentailers appeared to 'actively take advantage of the additional flexibility from vertical integration to smooth the allocation of wholesale price and volume volatility to their in-house retail divisions'.
'The ITPs for gentailers are estimated to be around $130 to $145 per MWh (megawatt hour, for the year ended 30 June 2024) compared with a wholesale spot price for the year ended 30 June 2024 of about $186 per MWh, and for the 10 months to 30 April 2025 is estimated at $215 per MWh,' it said.
Political commentator Shane Te Pou claimed in a Herald column the four gentailers had protected their profits by holding back renewables generation and consents for new generators for years.
'The electricity shortage works for the gentailers,' he said.
'When there's not enough renewable generation, they can run their expensive gas and coal plants. The way the electricity market works is everyone gets paid the price of generating the most expensive unit of electricity.
'So, the best situation for gentailers is most of their power comes cheap as chips, through hydro dams that the taxpayer paid for decades ago and wind farms, but they get paid like it's all coming from gas peaker plants.
'It's this set-up that's allowed the generators to make $7.6 billion in profits over the past decade, according to Council of Trade Unions analysis, and pay out over $10b in dividends.'
NZ First MP Shane Jones in Parliament. Photo / Mark Mitchell
Current politicians have also weighed in. Associate Energy Minister Shane Jones has called the gentailers 'the most powerful economic institutions in New Zealand beyond the supermarkets and the Aussie banks'.
Last August he told RNZ gentailers were not acting 'in a way that enhances competitiveness'.
The Green Party's energy spokesman Scott Willis has a member's bill titled the Electricity Industry (Separation of Generation and Retail Businesses) Amendment Bill written last year.
And the Organisation for Economic Co-operation and Development (OECD) commissioned a report that said the EA's reviews 'should reexamine separating the generation and retail operations of large electricity companies to boost competition in the futures market and provide industry with more hedging options'.
A public poll earlier this year, commissioned by Octopus Energy and conducted by Curia, found 49% of people supported splitting up the gentailers, compared to 16% who did not agree. The remainder, 35% were unsure.
The halfway house - a same-price deal
As the controversy rages, a Government task force has come up with a compromise proposal to force gentailers to offer the same electricity prices and hedge contracts to independent retailers as they do to their own retail divisions.
The Energy Competition Task Force was created by the Commerce Commission and the Electricity Authority (EA), two independent Crown entities, in response to surging wholesale power prices in August last year. The price spiked due to low gas supplies, record-low hydro lakes and a shortage of wind and sunshine.
The EA says its proposed regulation would give New Zealanders more competition, more choices and lower power prices.
'We consulted on a proposal to introduce a new electricity industry rule called 'mandatory non-discrimination obligations' that the four large gentailers - Genesis, Contact, Meridian and Mercury – would have to follow," the EA said.
'This new rule would prevent the gentailers from giving preferential treatment to their retail arms for hedge contracts. Instead, they would have to make these contracts available to all industry participants on effectively the same terms as they use when trading internally.'
The EA proposed the mandatory non-discrimination obligations as part of its Level Playing Field Measures, which the EA said would 'give all participants equal access to electricity hedge contracts, to increase competition and ultimately give consumers more choices and lower power prices'.
The task force is considering feedback to its proposals, and a decision is due in August.
Bridges told the Herald he did not necessarily believe the gentailers had to be broken up and remained open to any reform which created a clear delineation between divisions of one company.
'It may be a functional Chinese wall situation, right? Where one part of the business doesn't help the other.'
He added he was not necessarily pointing a finger at gentailers.
'They are doing what rational players would do.'
'A chilling effect' - the case against
The chief executive of the organisation representing generators and retailers said the EA's Level Playing Field Measures, as proposed, would not bring down power prices.
'Retailers believe the most effective way to reduce electricity prices and address energy hardship is by tackling the underlying causes of rising costs, such as constrained supply, infrastructure investment, and high input costs,' said Bridget Abernethy, chief executive of the Electricity Retailers' and Generators' Association of New Zealand (Erganz).
Bridget Abernethy is the chief executive of the Electricity Retailers' and Generators' Association of New Zealand (Erganz).
Erganz claimed in its submission that the EA's same-price proposal could increase power prices by 25% - a claim Abernethy said was backed up by a report it had commissioned.
'In 2021, Erganz engaged Dr Richard Meade of Cognitus Economic Insight to review the economic literature on the pros and cons of separating the generation and retail arms of the large generator-retailers.
'Dr Meade's report informed the Erganz submission [on Level Playing Field Measures] and our view that the proposed changes will not lead to better outcomes for New Zealand electricity consumers.'
Abernethy rejected calls to split up the gentailers, pointing to the cost involved and the ability of large gentailers to manage volatility and risk.
'This [status-quo] structure has contributed to lower retail prices than would likely result under a separated model,' Abernethy told the Herald.
'Separation would be costly, take years to achieve, and introduce a chilling effect on investment that would slow our journey to a more renewable future.
'Most importantly, it would not address the underlying issues for consumers in hardship and would introduce inefficiencies that would likely result in worse consumer outcomes in the long term.'
Abernethy claimed New Zealand already had one of the most competitive electricity markets in the world, with more retailers per capita than the UK or Australia.
She also said the generation and retail gross profit margins, as a percentage of sales, had tracked below the all-industries average over the last decade and a half. EA figures showed gentailers' profit margins per megawatt-hour in 2024 had been lower than the smaller companies' margins.
And Abernethy hit back at suggestions generators had not invested in new generation.
'Erganz members have spent around $10 billion on energy generation in the past decade, and more than $6 billion will be invested in renewable energy generation between now and 2030.
'[And] three of the four large retailers return more than half of their profit to the Government (as a 51% shareholder) for the benefit of all New Zealanders.'
Winstone Pulp International's Karioi Pulpmill is was shut down last year. Photo / Alexa Cook, RNZ
Bridges hit back with a pointed reference to the series of large business shutdowns driven by soaring energy costs - especially Oji Fibre Solutions closing its paper mill in Penrose, Auckland, and Winstone Pulp International closing two mills in the Ruapehu district.
'The fundamental pushback (from the industry) is that it'll have a chilling effect on the marketplace. My response to that is; well, what about the chilling effect of the wholesale deindustrialisation of New Zealand that's going on right now - not all because of power, but with that being a significant part about it? What about the businesses that are going bust?'
Monday: As Kiwis battle rising electricity bills, campaigners call for change
Tuesday: Could you get a cheaper plan for electricity? Most companies won't tell
Wednesday: Major company moves to stop disconnecting customers in hardship
Thursday: Why our biggest power companies should be broken up (and why they shouldn't)
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RNZ News
a day ago
- RNZ News
Commerce commission calls on business to report electricity companies
Commerce Commission chair John Small said if electricity suppliers were found to be misusing their market power to deter competition, it would take action. Photo: RNZ / Alexander Robertson The Commerce Commission is calling for business customers to anonymously report unfair or anti-competitive electricity industry practices. The commission has an anonymous reporting tool that it uses to collect information about other industries, such as the grocery sector. It is now making it available for reports about electricity as well, with encryption to avoid information being disclosed about the person making the report. Commerce Commission chair John Small said if electricity suppliers were found to be misusing their market power to deter competition, it would take action. The initiative was prompted by comments by Auckland Business Chamber chief executive Simon Bridges reported in the media, which said his members were uneasy or scared about raising complaints about their energy bills with their providers because they worried about retaliation, Small said. "I contacted Simon because that's really concerning. He got a group of his members together, the Major Electricity Users Group, people like that. I got the Electricity Authority and we had a couple of hours talking about it in a group," he said. "I really wanted to find out first of all what were the complaints and secondly was there evidence of breaches of the law the commission could prosecute. It was a really good discussion but it was all anecdotal." Further investigation had not settled on anything concrete, he said, so it was decided a way to "flush out" the problem could be to expand the anonymous reporting tool. "That works for us in other areas like cartels and groceries where there's the same kind of problem ... People can tell you stuff absolutely securely, knowing their name is never going to be published or found out. It might be that it doesn't get used, it might be all this goes away, sometimes a shot across the bows is all it takes to sharpen up behaviour." He said he had concerns about the power sector more generally. "We are working very closely with the Electricity Authority at the moment on a range of things. We will start to articulate a medium and longer-term regulatory strategy within a few weeks. It is under active consideration. I'm not at all happy with it." Sign up for Ngā Pitopito Kōrero , a daily newsletter curated by our editors and delivered straight to your inbox every weekday.
NZ Herald
a day ago
- NZ Herald
Energy crisis threatens NZ economy, time for gentailer reform
Meanwhile, Transpower's annual Security of Supply Assessment, which evaluates the ability of the electricity system to meet national demand in the years ahead, shows that there has been a marked decrease (i.e. 70%-80%) in anticipated new supply, in comparison to prior expectations. This is despite the high future wholesale prices, which should (at least in a well-functioning market) result in more supply and enhanced competition. A sharp fall in the availability of gas over recent years (much sharper than anyone had foreseen) certainly hasn't helped matters, but it is far from the only factor suppressing demand, as some are suggesting. Delayed or cancelled solar and wind projects make up half of the projected fall Transpower speaks of. The reality is that neither the big four gentailers nor the smaller independent players have brought renewable energy projects to market as quickly as had been indicated. To understand what's driving this, I believe we need to look squarely at the current structure of the energy market, where the four gentailers operate on both the generation and retail sides, and completely dominate both (combined market share is close to 90% in each case, and climbing). This model incentivises gentailers to hold back supply and foreclose competition, and provides them with the power to do so. When a single business controls both sides of the market, basic incentives to increase supply are dulled. After all, more supply will only mean lower prices, and poorer returns for the gentailers' retail arms. Energy today is a severe handbrake on business and the economy, and on our collective goal of making New Zealand a more productive, prosperous nation. Simon Bridges Likewise, there is minimal incentive to facilitate the entry of new players into the market by offering adequately long-term, competitively priced contracts – not just for energy supplied to gentailers by independent generators, but also for energy sold by gentailers to independent retailers. This is not to say that no investment in new generation is taking place, or that no contracts are being signed with independents, but rather that these things are not happening on the scale or at the speed they need to. Nothing the gentailers are doing is crooked or underhand – they're simply acting rationally and commercially in their shareholders' interests. The problem is the rules of the game that the gentailers are responding to. As the energy sector lurches from crisis to crisis, it's very difficult not to reach the conclusion that these rules need to change. My view – which has strong support across the energy sector, bar the gentailers – is that the Government needs to separate gentailers' generation and retail functions. This would be a case of corporate separation rather than structural separation – common ownership would be maintained across the generation and retail sides, but there would be operational independence between them. Changing the structure of the market on its own won't fix all the sector's problems. We also need immediate steps to boost supply, such as a government tender for additional generation to fill the unmet need in the next five years (with the cost potentially recouped via an industry levy). Over the longer term, we need a stable, settled energy strategy, underpinned by bipartisan consensus. But it is arguably the most important single step we can take. What I'm proposing isn't wacky or radical. The same approach has been used to good effect overseas to address competition and affordability issues in the energy market, and in our own telecommunications sector a decade or so ago. The OECD has recently called for gentailer separation to be brought back to the table in New Zealand. Still, some argue that it's all too bold, and that government intervention will have a chilling effect on the market. I'd argue the opposite – that failure to intervene, and allowing the slide into de-industrialisation and productivity loss to continue, will do far more to undermine investor confidence. The time for incrementalism is over. Let's see real structural reform. Simon Bridges is CEO of the Auckland Business Chamber, and a former Minister of Energy and Resources.
NZ Herald
6 days ago
- NZ Herald
Why our biggest power companies should be broken up (and why they shouldn't) - Power to the People, part 4
Known as gentailers because they both generate electricity and sell it as retailers, the big four have come under increasing attack from their critics as rising power prices squeeze households and businesses alike. These days Bridges is leading the charge. 'Gentailers come up with all manner of clever explanations from high-paying executives about all of this,' the chief executive of the Auckland Business Chamber and former National Party leader told the Herald. 'But as we lurch from crisis to crisis, they are ruling the roost more than ever.' The chamber was a co-signatory of an open letter to the Prime Minister this month calling for market reform. It's the latest in a growing list of public complaints by influential business leaders, politicians, and other campaigners, who say the electricity market is not working for people. Households are now feeling the pain along with businesses, as higher transmission charges drive a 10.4% increase in power bills. Consumer NZ's most recent quarterly sentiment survey in April showed 35% of people ranked the cost of energy as a top-three financial concern, up from 21% last April. The same survey found one in five households have had difficulty paying their power bill in the last year. Many prominent critics, including several smaller retailers, claim the prices are high because our four biggest companies control both the generation and the sale of electricity. Most have suggested breaking up the gentailers as the way to fix it. 'A cynical tactic' - the case for change Under the current system, the gentailers sell the electricity they generate to their retail arms at an Internal Transfer Price (ITP) before the remaining electricity is sold to retailers for spot (floating) or hedged (pre-agreed) prices. In 2022, Flick - which has recently been bought by Meridian - started a petition to split up the gentailers, saying the Internal Transfer Prices gentailers set for their retail divisions were artificially lower because they 'don't include the same costs and risks an independent retailer faces'. Flick said at the time: 'Essentially, gentailers are leveraging their vertically-integrated position to benefit from low electricity prices acquired through inherited assets.' Simon Bridges, CEO of the Auckland Regional Chamber of Commerce, a co-signatory of an open letter to the Prime Minister this month calling for electricity market reform. Photo / Dean Purcell The open letter that Bridges signed to Prime Minister Christopher Luxon suggested a range of reforms, which could include splitting the gentailers into separate generation and retail companies. 'When a handful of companies control both generation and retail supply, the competitive pressures that should attract new investors and drive innovation, efficiency, and fair pricing are severely diminished,' said the letter, which was also signed by the Employers' and Manufacturers' Association, the Northern Infrastructure Forum, Consumer NZ and four other independent power companies, Pulse Energy Alliance, Octopus Energy, 2degrees and Electric Kiwi. When advocacy group Common Grace Aotearoa asked every power provider what initiatives they were taking to curb energy hardship, most pointed to their philanthropic donations and support programmes. Two companies, though, said the issue went beyond each provider, and only market reform would get to the root of high prices. Switch Utilities, owned by 2degrees, said: 'We believe that the real issue is wider than those in immediate hardship. All Kiwis are paying too much for power, and we are strongly championing reform to the electricity market which will deliver greater competition and more affordable electricity.' Electric Kiwi said gentailers' dominance was keeping wholesale power prices artificially high. 'Weʼve long said that the root cause of high-power prices, a key driver energy hardship, is the structure of New Zealandʼs electricity market. 'The dominance of the big gentailers allows wholesale prices to remain artificially high. Itʼs a cynical tactic that is harming New Zealand. We are trying to change that.' While the smaller power companies have an obvious commercial motive in attacking gentailers' dominance, many other politicians and business groups have taken a similar stance. The EA says evidence that gentailers are using market power 'is not well defined, [but] industry consultation has not yielded any evidence to contradict our view that the status quo may be stifling competition'. A review of new regulations by NZIER for the Major Electricity Users Group said gentailers appeared to 'actively take advantage of the additional flexibility from vertical integration to smooth the allocation of wholesale price and volume volatility to their in-house retail divisions'. 'The ITPs for gentailers are estimated to be around $130 to $145 per MWh (megawatt hour, for the year ended 30 June 2024) compared with a wholesale spot price for the year ended 30 June 2024 of about $186 per MWh, and for the 10 months to 30 April 2025 is estimated at $215 per MWh,' it said. Political commentator Shane Te Pou claimed in a Herald column the four gentailers had protected their profits by holding back renewables generation and consents for new generators for years. 'The electricity shortage works for the gentailers,' he said. 'When there's not enough renewable generation, they can run their expensive gas and coal plants. The way the electricity market works is everyone gets paid the price of generating the most expensive unit of electricity. 'So, the best situation for gentailers is most of their power comes cheap as chips, through hydro dams that the taxpayer paid for decades ago and wind farms, but they get paid like it's all coming from gas peaker plants. 'It's this set-up that's allowed the generators to make $7.6 billion in profits over the past decade, according to Council of Trade Unions analysis, and pay out over $10b in dividends.' NZ First MP Shane Jones in Parliament. Photo / Mark Mitchell Current politicians have also weighed in. Associate Energy Minister Shane Jones has called the gentailers 'the most powerful economic institutions in New Zealand beyond the supermarkets and the Aussie banks'. Last August he told RNZ gentailers were not acting 'in a way that enhances competitiveness'. The Green Party's energy spokesman Scott Willis has a member's bill titled the Electricity Industry (Separation of Generation and Retail Businesses) Amendment Bill written last year. And the Organisation for Economic Co-operation and Development (OECD) commissioned a report that said the EA's reviews 'should reexamine separating the generation and retail operations of large electricity companies to boost competition in the futures market and provide industry with more hedging options'. A public poll earlier this year, commissioned by Octopus Energy and conducted by Curia, found 49% of people supported splitting up the gentailers, compared to 16% who did not agree. The remainder, 35% were unsure. The halfway house - a same-price deal As the controversy rages, a Government task force has come up with a compromise proposal to force gentailers to offer the same electricity prices and hedge contracts to independent retailers as they do to their own retail divisions. The Energy Competition Task Force was created by the Commerce Commission and the Electricity Authority (EA), two independent Crown entities, in response to surging wholesale power prices in August last year. The price spiked due to low gas supplies, record-low hydro lakes and a shortage of wind and sunshine. The EA says its proposed regulation would give New Zealanders more competition, more choices and lower power prices. 'We consulted on a proposal to introduce a new electricity industry rule called 'mandatory non-discrimination obligations' that the four large gentailers - Genesis, Contact, Meridian and Mercury – would have to follow," the EA said. 'This new rule would prevent the gentailers from giving preferential treatment to their retail arms for hedge contracts. Instead, they would have to make these contracts available to all industry participants on effectively the same terms as they use when trading internally.' The EA proposed the mandatory non-discrimination obligations as part of its Level Playing Field Measures, which the EA said would 'give all participants equal access to electricity hedge contracts, to increase competition and ultimately give consumers more choices and lower power prices'. The task force is considering feedback to its proposals, and a decision is due in August. Bridges told the Herald he did not necessarily believe the gentailers had to be broken up and remained open to any reform which created a clear delineation between divisions of one company. 'It may be a functional Chinese wall situation, right? Where one part of the business doesn't help the other.' He added he was not necessarily pointing a finger at gentailers. 'They are doing what rational players would do.' 'A chilling effect' - the case against The chief executive of the organisation representing generators and retailers said the EA's Level Playing Field Measures, as proposed, would not bring down power prices. 'Retailers believe the most effective way to reduce electricity prices and address energy hardship is by tackling the underlying causes of rising costs, such as constrained supply, infrastructure investment, and high input costs,' said Bridget Abernethy, chief executive of the Electricity Retailers' and Generators' Association of New Zealand (Erganz). Bridget Abernethy is the chief executive of the Electricity Retailers' and Generators' Association of New Zealand (Erganz). Erganz claimed in its submission that the EA's same-price proposal could increase power prices by 25% - a claim Abernethy said was backed up by a report it had commissioned. 'In 2021, Erganz engaged Dr Richard Meade of Cognitus Economic Insight to review the economic literature on the pros and cons of separating the generation and retail arms of the large generator-retailers. 'Dr Meade's report informed the Erganz submission [on Level Playing Field Measures] and our view that the proposed changes will not lead to better outcomes for New Zealand electricity consumers.' Abernethy rejected calls to split up the gentailers, pointing to the cost involved and the ability of large gentailers to manage volatility and risk. 'This [status-quo] structure has contributed to lower retail prices than would likely result under a separated model,' Abernethy told the Herald. 'Separation would be costly, take years to achieve, and introduce a chilling effect on investment that would slow our journey to a more renewable future. 'Most importantly, it would not address the underlying issues for consumers in hardship and would introduce inefficiencies that would likely result in worse consumer outcomes in the long term.' Abernethy claimed New Zealand already had one of the most competitive electricity markets in the world, with more retailers per capita than the UK or Australia. She also said the generation and retail gross profit margins, as a percentage of sales, had tracked below the all-industries average over the last decade and a half. EA figures showed gentailers' profit margins per megawatt-hour in 2024 had been lower than the smaller companies' margins. And Abernethy hit back at suggestions generators had not invested in new generation. 'Erganz members have spent around $10 billion on energy generation in the past decade, and more than $6 billion will be invested in renewable energy generation between now and 2030. '[And] three of the four large retailers return more than half of their profit to the Government (as a 51% shareholder) for the benefit of all New Zealanders.' Winstone Pulp International's Karioi Pulpmill is was shut down last year. Photo / Alexa Cook, RNZ Bridges hit back with a pointed reference to the series of large business shutdowns driven by soaring energy costs - especially Oji Fibre Solutions closing its paper mill in Penrose, Auckland, and Winstone Pulp International closing two mills in the Ruapehu district. 'The fundamental pushback (from the industry) is that it'll have a chilling effect on the marketplace. My response to that is; well, what about the chilling effect of the wholesale deindustrialisation of New Zealand that's going on right now - not all because of power, but with that being a significant part about it? What about the businesses that are going bust?' Monday: As Kiwis battle rising electricity bills, campaigners call for change Tuesday: Could you get a cheaper plan for electricity? Most companies won't tell Wednesday: Major company moves to stop disconnecting customers in hardship Thursday: Why our biggest power companies should be broken up (and why they shouldn't)
