The Electricity Authority is moving to level the playing field between the four big generator-retailers and independent participants in the electricity market.
The level-playing-field options were developed by the authority, the Commerce Commission and the Ministry of Business, Innovation and Employment under the Energy Competition Task Force.
As it stands, the bulk of the market is comprised of Genesis, Mercury, Meridian and Contact, who each have big generation and retail operations.
The big four can cross-subsidise themselves because they both produce the energy and sell it.
Power prices are on the rise.
Stats NZ last week said retail power prices were up 11% in the year to July, while gas prices were up 14%.
The Electricity Authority (EA) confirmed three targeted interventions to boost competition and build confidence in the wholesale market.
“We are concerned that aspects of the wholesale market may be eroding the confidence required for independent players to compete, and we are acting to address these concerns,” EA chair Anna Kominik said.
Energy Minister Simon Watts said changes agreed to by the EA would level the playing field for smaller power companies, boosting retail competition by putting downward pressure on power prices.
“The new rule will mean they have to offer their generation at the same rate to everyone and can’t offer themselves discounts,” Watts said.
“This will level the playing field by giving smaller companies a better chance to compete and will mean Kiwi consumers have more choices.”
These changes were developed under the Energy Competition Task Force, established in August last year in response to the winter power crisis.
“While today’s announcement is a positive step, we remain deeply concerned about the lack of affordability and competitiveness in the electricity market,” Watts said.
Watts said he had received the final report of the electricity markets performance review.
He would have more to say on the review’s outcomes “in due course”.
The EA said it was progressing “pro-competition” interventions at pace, so changes could be in place by mid-2026.
The first intervention will require generator-retailers (gentailers) to trade minimum volumes of the new wholesale electricity hedge product introduced in January to help independent participants manage their risk.
The second involves introducing mandatory non-discrimination obligations for the four large gentailers.
“This will provide greater confidence that the gentailers’ wholesale businesses are not treating independent retailers differently to their own retail businesses,” the EA said.
The third measure is a review of “market-making” in the electricity futures market to ensure it promotes healthy competition and transparency.
The moves cover “shaped” hedges – financial contracts that allow buyers and sellers to manage the risk associated with fluctuating electricity prices by locking in a specific price for a future delivery period with a customised profile or “shape”.
The authority said it was ready to intervene “with urgent regulation” if there was a sudden material reduction in the supply of shaped hedges.
By fixing costs when energy demand is highest, shaped hedges help retailers manage risk and keep prices stable and affordable, even in tight market conditions, the EA said.
“Targeted and timely interventions are needed to encourage new generators and independent retailers to enter, grow and compete in the market,” Kominik said.
“These initiatives will promote healthy competition, retail innovation and investment in the sector – all of which are essential to deliver a reliable and affordable electricity supply,” she said.
In February, the authority sought feedback on options to level the playing field between the gentailers and independent generators and retailers, receiving more than 40 written submissions and meeting with more than 20 submitters.
Kominik said some felt that regulatory change was not happening fast or hard enough.
“The proposals being announced today target measures that can be rolled out in months, not years, driving timely progress while ensuring all parties can participate in and contribute to the process,” she said.
“New Zealand’s electricity market is undergoing significant change and the authority has a clearly signposted programme of proposed reforms and adjustments under way that keep the focus on security of supply and affordability.”
Commerce Commission chair and taskforce member John Small said the initiatives were designed to work together to promote increased competition in the sector.
“We don’t expect these proposed changes would materially increase gentailers’ costs but do expect they would lead to more choices and lower power prices over the long term,” Small said.
Consumer NZ has called for greater separation between the big power companies’ generation and retail functions to ensure a fairer electricity market.
The independent consumer group, in its submission to the EA paper on levelling the playing field, said it believed in the value of markets.
Consumer said a well-designed, well-functioning and effectively regulated market would deliver positive outcomes for consumers by fostering innovation, providing choice, and maintaining downward pressure on prices.
“Unfortunately, this is not what we observe in the New Zealand electricity market,” it said.
Octopus Energy NZ welcomed the EA’s moves but warned the solutions proposed were unlikely to change behaviour.
“The EA’s report clearly acknowledges the issue of the big four gentailers discriminating between their own retail operations and independent rivals which has stifled competition,” Octopus Energy NZ chief operations officer Margaret Cooney said.
“Today’s acknowledgement of the problem in the wholesale markets demonstrates the need for a transparent solution: requiring arms-length operation of the retail and generation businesses, with separate management teams required to operate the businesses as if they were individual companies,” Cooney said.
“This would make conduct transparent and easier for the EA to monitor, while providing the basis for genuine confidence in the functioning of the wholesale market.”
Octopus NZ is part of the London-based Octopus Group, an investment business that also owns a large stake in UK household energy firm, Octopus Energy.
Jamie Gray is an Auckland-based journalist, covering the financial markets, the primary sector and energy. He joined the Herald in 2011.