National taking fresh look at power market as Flick asks public to 'revolt'

Wednesday, 16 June 2021

Flick Electric has called for the ‘structural separation’ of the major gentailers, but the Electricity Authority is expected to recommend more incremental reforms.

Z Energy subsidiary Flick Electric has launched a petition and public campaign calling for the break-up of Meridian, Genesis and Mercury, in the same way Telecom was broken-up in 2011.

Flick is inviting people to “join the revolt to reform New Zealand's broken electricity market” by signing a petition calling for the structural separation of the big power firms into generation and retail businesses.

It and fellow independent retailer Electric Kiwi, which also wants the three gentailers split, have received some encouragement from an unlikely source.

National Party energy spokeswoman Barbara Kuriger said the party was discussing its “Bradford reforms” of the industry and was open to the idea of structural separation.

Energy Minister Megan Woods told Parliament in April she was taking the situation in the electricity market very seriously.

* Electricity Authority's defence of power market prompts backlash

* Energy Minister Megan Woods not ready to give power firms the 'Telecom' treatment

“It is fair to say that I am open to all options being put on the table, that being one of them,” Kuriger said.

Former National energy minister Max Bradford laid the groundwork for the break-up of the Electricity Corporation and the creation of Meridian, Genesis and Mercury in 1999 as businesses allowed to both generate and retail power.

But independent power retailers say the market for ultrafast broadband designed at a later date by National to prevent network owners such as Chorus from retailing UFB has proved a better model.

Kuriger said the Bradford reforms “happened for a reason at the time, but things always need to be re-looked at”.

Energy Minister Megan Woods said in April that structural separation would “p robably, maybe” need to be revisited in future but was not on her current work programme.

Taranaki-King Country MP Barbara Kuriger said mayor Robertson is entitled to an answer from ministers about why Waitomo is still in level 3.

She indicated the Government was unlikely to consider major reforms of the power market until it knew the outcome of its NZ Battery Project.

That could see the construction of a high pumped hydro plant at Lake Onslow that analysts have forecast could “tip the market on its head” anyway.

But Flick chief executive Steve O’Connor said Lake Onslow could be 10 years away, and competition would “not be around” by then as the electricity market was already failing on all three counts.

Power was “more expensive than it has ever been before”, creating more emissions than for a long time, and “we are worried about whether we can supply”, he said.

Gentailers could protect their own retail customers from higher wholesale prices under the current market model, which allows them to supply most of the power they produce to their own consumers and the balance to competitors through the wholesale market.

But that was only at the expense of competition “which is ultimately bad for consumers in the long run”, O’Connor said.

Methanex, the Tiwai Point aluminium smelter, NZ Steel and some of the country’s largest pulp and paper mills have cut production this year due to either high power prices or low supply.

While gas and hydro power shortages were partly to blame, dry weather alone could not explain high electricity futures prices and the market was “just not delivering”, O’Connor said.

“If we had a scorecard it wouldn’t be a ‘C’, and if it was a ‘C’ it would be C for carbon.”

The NZ Battery Project, which may see a huge pumped hydro facility built at Lake Onslow in Otago (above), could tip the electricity market on its head, but independent retailers warn competition may not be able to wait that long.

Flick was asking the public to back market reform, as internet provider Slingshot had done prior to the break-up of Telecom, as it didn’t get the sense Woods or the Electricity Authority knew what to do, he said.

“The more Kiwis we have that express their concern, the greater chance the Government is going to listen.”

An interim step to full separation could be forcing gentailers to sell power to their own retail arms at the same price and on the same terms they sold to other retailers, he said.

Electric Kiwi chief executive Luke Blincoe said electricity prices would fall and competition in both retail and generation would increase if the big gentailers were split.

The current model discouraged them from investing in new renewable generation until the demand was already there and they could make investments “risk-free”, he said.

“Everything happens a little bit late.”

Polly Atkins, a spokeswoman for Meridian Energy, the country’s largest gentailer, responded that it was “not surprising that non-integrated retailers push for disruption of vertically-integrated business models”.

“Nor should it be surprising that vertically integrated firms think their business model is efficient, enables better management of risk, lowers the cost of doing business, and makes it easier to invest in generation, all of which encourages fiercer competition in the market and puts downward pressure on electricity prices for consumers,” she said.

Meridian would “welcome competition from the likes of Electric Kiwi” if they decided to invest in renewable generation and helped to decarbonise the New Zealand economy, she said.

Atkins pointed to the Government’s Electricity Price Review, which described structural separation as “unnecessary” and an Australian Competition and Consumer Commission report that said vertical integration in Australia “had the potential to be pro-competitive”.

Although the ACCC added it was concerned about “a combination of vertical integration and market concentration” which it said reduced the likelihood that vertical integration enhanced competition.

She also referenced a 2016 report by Britain’s Competition & Markets Authority that did not identify any areas in which vertical integration was likely to harm competition in that country, and said it could have generated efficiencies that might be passed through to customers.

The authority came to that conclusion after noting that Britain’s six large power firms did not have the market power to earn excess profits from power generation.

In a sign of the growing pressure on independent retailers here, Flick said it would stop promoting its power plans through the Electricity Authority-backed PowerSwitch website, as it was not economic to take on new customers.

O’Connor said that meant big power companies that were “protected by internal pricing deals from their generation arm” were growing their market power.

Flick knew it was paying a higher price for power than the retail arms of the gentailers, he said.

“Competition is at breaking point.”

Blincoe said Electric Kiwi dropped off PowerSwitch last month.

“The reality that doesn’t appear to be acknowledged by the minister or the regulator is that the market relies on competition in the retail space to keep prices down, he said.

“If you lose competition, it is inevitable prices will go up.”

Blincoe said he was encouraged by Kuriger’s comments.

“It has been a long time since the Bradford reforms and it would be miraculous if they were still fit for purpose,” he said.