Electric Kiwi complains to the Commerce Commission, alleging gentailers are abusing their market power

Power retailer Electric Kiwi says it has lodged a complaint with the Commerce Commission alleging New Zealand’s four "gentailer" energy companies are abusing their market power.

In a press release, Electric Kiwi chief executive officer Luke Blincoe said Mercury, Contact, Genesis and Meridian, which both generate and sell electricity, were abusing their market dominance and action needed to be taken to protect consumers.

Blincoe said Electric Kiwi had laid a complaint under Section 36 of the Commerce Act, which aims to prevent businesses with substantive market power from suppressing competition. He said the industry regulator, the Electricity Authority, had failed to act on competition problems in the sector.

“The big four gentailers have created a distorted electricity market, that screws over customers and kills innovation, and that this innovation is crucial to deliver the outcomes NZ needs as we electricity the economy, and as we tackle a cost-of-living crisis,” Blincoe said.

Blincoe said the gentailers controlled about 85% of electricity generation in New Zealand. As the only generators with scale they were able to exercise their power in both wholesale and retail markets to squeeze out competition and keep prices heading upwards for New Zealand businesses and families, he said.

Blincoe said a key issue was access to “shaped hedge products”, or wholesale products independent retailers such as Electric Kiwi buy to cover variations in electricity usage across the day. 

“A lack of access to peak products (that cover mornings and evening peaks), as well as huge escalations in wholesale costs, are driving independent retailers out of the market.”

All four gentailers have been contacted for comment. A spokesperson for Meridian said it had yet to receive a copy of the complaint, "so there is nothing we can say at this point in time".

The Commerce Commission said it would review the information shared with it by Electric Kiwi.

"In deciding whether to investigate issues that come to its attention, the Commission considers the available information for its relevance to the Commission's responsibilities and current work programme, its enforcement criteria and priority areas for new enforcement work,"  a spokesperson said in an email.

Consumer NZ chief executive Jon Duffy said it would be very interested to see the outcome of any Commerce Commission investigation.

“It’s been 25 years since the Bradford reforms which were intended to deliver cheaper power and increased competition – yet the vast majority of New Zealanders are with one of the original retailers or their subsidiaries – enabling those gentailers to continue making huge profits."

Duffy said retailers that don't generate electricity themselves have to buy electricity from the "very gentailers" they compete against at the retail level. Consumer NZ believed this was a deterrent to entry, and was continuing to prove a barrier to genuine competition.

“The power providers doing a better job of keeping their customers happy tend to have a smaller market share and have no generation assets. We firmly believe genuine competition could lower prices for everyone. Switching power provider is a simple way to enable this change.

In late August, Consumer NZ said it was concerned by a “profit surge” at the big four gentailers.

Consumer NZ said gentailers had announced their largest ever single-year rise in earnings at a time when many New Zealand households can't afford to heat their homes.

“Combined, the top four gentailers – that’s Meridian, Contact, Genesis and Mercury – made a whopping $2.7 billion in operating profits. That’s around $7.4 million profit every day over the past 12 months.”

Duffy said New Zealanders had the ability to save on their power by shopping around, but that only went so far. He said more work needed to be done to ensure consumers could have confidence the electricity sector was working to their benefit.

“We acknowledge that profits are a healthy and normal part of business, but there’s a question around what is excessive. The big four gentailers and their subsidiaries have significant market share, providing power to about 85% of the market,” Duffy said.

Powering price rises

In 2019 an independent review of New Zealand’s electricity market was undertaken because electricity prices for residential consumers had increased faster than inflation for many years.

The final report found residential power prices had risen 48% since 2000 – faster than those in most other Organisation for Economic Co-operation and Development countries.

It found the-then five biggest generator-retailers dominated the retail market, with a 90% market share, and this market share hadn’t budged in a decade.

The review also found that independent retailers faced barriers to expanding their market share.

More than 30 recommendations were made to address these issues, including setting up an advocacy group for consumers.

This organisation, the Consumer Advocacy Council, recently told media key recommendations had not been implemented four years on from the review, including consumer care guidelines.

These guidelines are meant to “provide a consistent and supportive standard of service to domestic consumers”.

In May, the Electricity Authority said not all electricity retailers were following the consumer guidelines they helped create.

The authority said five of the six large retail brands said they were "fully aligned" to the guidelines including Contact, Mercury, Trustpower, Meridian and Powershop, with Genesis “reporting partial alignment”.

Mercury was now the owner of Trustpower.