The Task Force Looks To Level The Playing Field Between The Gentailers, Independent Generators & Retailers

The Energy Competition Task Force (the Task Force) has announced non-discrimination measures are its preferred way to level the playing field between the four large gentailers - Genesis, Contact, Meridian and Mercury - and independent participants in the electricity market. Levelling the playing field would give all participants equal access to electricity hedge contracts, to increase competition and ultimately give consumers more choices and lower power prices.

The proposed non-discrimination measures would prevent the generator-retailers (the gentailers) from giving preferential treatment to their retail arms in relation to hedge contracts. Instead, gentailers would have to make these products available to all industry participants on effectively the same terms as they use when trading internally and provide greater transparency about the prices and volumes provided to the retail sides of their businesses. This gives the Authority the ability to take action if monitoring shows evidence of unfair treatment.

Electricity Authority Te Mana Hiko Chair and Task Force member Anna Kominik says the Authority’s current view is that the proposed mandatory non-discrimination obligations are 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. And unlike other options we considered, they can be implemented in months rather than years."

"Our current thinking is that it’s important to introduce new non-discrimination obligations as soon as possible, to ensure all participants can compete on equal terms. This will give new players and investors confidence to enter the market, support development of new products and services, and put downward pressure on prices. While evidence that gentailers are using market power is not well defined, industry consultation has not yielded any evidence to contradict our view that the status-quo may be stifling competition."

"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 Electricity Authority is now seeking feedback on an options paper that sets out the proposed approach to introducing these new obligations.

Commerce Commission Chair and Task Force member, Dr John Small says the Task Force is committed to taking pragmatic and sensible actions to improve outcomes for consumers.

"The level playing field measures are designed to work alongside other Task Force initiatives to promote investment in renewable energy and innovation, while improving resilience, affordability and accessibility for electricity consumers."

"We expect the proposed non-discrimination obligations, if implemented, would help ensure all retailers and generators have fair access to flexible generation backed products, particularly for morning and evening periods when consumer demand is highest."

"The proposed measures deliberately balance the significant long-term benefits of promoting competition with the nearer-term risks of direct market intervention - for example, the risk that investment slows due to uncertainty about the rules," said Small.

The Authority invites feedback from industry and consumers on these proposals through the eight-week consultation period, which closes at 5pm on Wednesday 23 April.

Visit the Task Force webpage for more information about the proposal and details on how to have your say.

Notes:

About the Energy Competition Task Force

The Energy Competition Task Force was established by the Commerce Commission Te Komihana Tauhokohoko and Electricity Authority Te Mana Hiko in August 2024 to investigate ways to improve the performance of the electricity market.

The Task Force is considering eight initiatives that will encourage more and faster investment in new electricity generation, boost competition, enable homes, businesses and industrials to better manage their own electricity use and costs, and put downward pressure on prices.

Visit www.ea.govt.nz/taskforce for more information.

About the level playing field proposal

What exactly is being proposed?

We are proposing a progressive approach to non-discrimination obligations supported by increased monitoring of gentailers’ responses and consumer outcomes. If the first step proves insufficient, the Electricity Authority could then escalate to more prescriptive ways of levelling the playing field to ensure all New Zealanders can benefit from critical flexible generation.

The three proposed steps are:

Step 1: Principles-based non-discrimination requirements.

Step 2: Non-discrimination requirements set out in detail.

Step 3: All gentailer-supplied hedge contracts must be traded through a regulated market, on equal terms for all buyers.

The options paper also reconsiders the potential role of another Task Force initiative - virtual disaggregation. The Authority is also interested in hearing from stakeholders about this option.

How will the proposal increase competition?

Ensuring hedge contracts are traded on even-handed terms promotes competition by creating a level playing field for generators and retailers to compete in.

Our proposal requires gentailers to offer independent retailers and generators access to products (such as hedge contracts) on substantially the same terms as gentailers give to their internal retail arms, while maintaining investment incentives and security of supply. This means that gentailers would not be able to favour themselves by, for example, giving their retail arms access to flexible generation/hedge contracts on better terms than they offer to third parties.

Why propose non-discrimination obligations?

We looked at other level playing measures and our current view is that non-discrimination obligations, combined with the new standardised flexibility product that started trading last month, are the most appropriate response to the competition risks we are observing.

Non-discrimination obligations can substantially level the playing field between the gentailers and independent generators and retailers in a matter of months rather than years.

They promote a level playing field by giving independent retailers and generators access to key products (hedge contracts) on substantially the same terms as gentailers supply themselves internally while maintaining investment incentives and security of supply.

What are the escalation points?

• Step 1 to 2:

Regulating the standardised flexibility product: low offer or trading volumes

Introducing more detailed non-discrimination requirements: even-handed treatment not demonstrated by evidence (non-compliance with non-discrimination principles, eg, internal transfer prices are not the same as external prices offered, and there is no efficiency-based reason for the difference).

• Step 2 to 3:

Evidence that the existing non-discrimination obligations are failing in eliminating discrimination.

Why not structural separation?

Structural separation would require gentailers’ retail and generation arms to be fully separated into different companies, with different ownership.

Primary legislation would be required to implement structural separation. It would also take substantially longer to implement, and be more disruptive to critical investment and development, than our proposed non-discrimination remedy. This is discussed in more detail on page 45 of the options paper.

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