Competition task force recommends ‘anti-discrimination’ rule for power giants

Thursday, 27 February 2025

Commerce Commission and Electricity Authority say consumers could expect lower prices and better services.

A shake-up of the electricity sector is looming after a competition task force established by the Government recommended forcing the big four firms to abide by new “anti-discrimination” rules.

Energy Minister Simon Watts said the proposed measures sent “a strong signal that gentailers creating an advantage for their own retailers at the expense of the affordability and security of New Zealand’s energy supply will no longer be tolerated”.

The task force, run jointly by the Commerce Commission and the Electricity Authority, said the change would put small power retailers on a level playing field in the retail market with Meridian, Contact, Mercury and Genesis.

It would arguably be the biggest rule change for the sector since the Bradford reforms of the electricity industry in the late 1990s, echoing the operational separation of Telecom ordered by former Labour minister David Cunliffe in 2007.

Cunliffe’s reforms were later superseded by the full structural separation of Telecom and a return to a partially planned telco market with the construction of the Government-backed ultrafast broadband network.

The Energy Competition Task Force’s proposals would not directly address any issues in the power generation market itself. Watts earlier appointed British consultant Frontier Economics to lead a broad review of electricity market rules.

But the task force said its proposal would prevent the big four gentailers from giving preferential treatment to their retail arms in relation to hedge contracts.

Those contracts effectively set out the terms on which retailers can buy power over the longer term.

Energy Minister Simon Watts said he met with the gentailers two weeks ago and warned them the Government would not accept a repeat of last winter’s energy crunch.

Commerce Commission chairperson John Small believed that would have the effect of encouraging investment from independent generators by making it easier for them to sell power from the likes of solar farms and wind farms.

The country’s largest gentailer, Meridian Energy, was guarded in its response, saying it would take some time to digest the detail of the proposals and provide feedback to the Electricity Authority through its consultation process.

“We're a highly competitive sector, with three times as many retailers per connection point as the UK, and twice the number of retailers as Australia,” chief customer office Lisa Hannifin said.

“That said, Meridian is supportive of any activity that further enhances competition and most importantly delivers actual benefits for our customers.”

Huia Burt, chief executive of electricity retailer Electric Kiwi, said the proposals were a “game changer” that it wanted to see implemented quickly.

“It is potentially a seismic shift in opportunity for our economy and for all energy consumers,” she said.

Margaret Cooney, chief operating officer of British-owned power retailer Octopus Energy, described the proposals as a step in the right direction for increasing competition, but said actual operation separation would make them easier to police.

“It’s the start of action that is needed to get competition working more effectively and bring investment in generation and smart retailing, driving down the cost of electricity for households and businesses.

“They need to be supplemented with clear rules. This will make it easier for firms to comply and the Electricity Authority to monitor compliance. Otherwise we risk ending up in a blurry mess with big legal fees,” she said.

Electricity Authority chairperson Anna Kominik said its current view was the proposed “mandatory non-discrimination obligations” were the quickest and most effective way to improve competition and – depending on feedback – should be swiftly implemented.

“In our view, the new rules we’re proposing will effectively ensure fair treatment for participants, boost competition now and in the future, and give consumers lower prices, better services and more choice of power provider”, she said.

“Unlike other options we considered, they can be implemented in months rather than years,” she said.

There was no “well defined” evidence that gentailers were exploiting their market power, but “industry consultation has not yielded any evidence to contradict our view that the status-quo may be stifling competition”, she said.

“We are proposing a progressive approach, introducing non-discrimination obligations now, with the option of introducing more prescriptive ways of levelling the playing field if required.”

The commission said in its proposal that an alternative of full structural separation of the gentailers into separately-owned generation and retail businesses would require a law change and would be costly and challenging to implement.

The proposals were announced amidst a series of steep price hikes by large power firms and evidence in their latest financial results that the big four had increased their dividend pay-out to shareholders at the same time as trimming investment.