The Electricity Authority is taking steps to try and help level the playing field in the electricity market between the so-called gentailers and other retail competitors.
The Authority says it has decided to tweak the Electricity Industry Participation Code 2010 by introducing non-discrimination obligations (NDOs).
The NDOs would mean the four gentailers have to supply risk management contracts on “an even-handed basis” to all buyers, “meaning they cannot favour their own retail arms on price or non-price terms.”
These gentailers are Mercury, Meridian, Contact Energy and Genesis Energy.
Electricity Authority Acting Chairman Erik Westergaard says this move will strengthen competition, increase transparency, and provide information the Authority can use for monitoring and enforcement.
"The combined effect of these initiatives is to encourage market confidence which is a key enabler of the investment and innovation that improves consumer choice and puts downward pressure on prices.”
The NDOs will come into force from July 1, but before that, the gentailers will have to submit plans to the Authority about how they will comply with the NDOs and certify they are compliant annually.
To show their retail price offers are “justifiable in relation to their expected cost of electricity supply, and that an equally efficient retailer could compete with them on price”, the Authority says the gentailers will also have to submit six-monthly Retail Price Consistency Assessments.
The Electricity Authority is an independent Crown entity tasked with governing the electricity market. However, it doesn’t set power prices, but says the impacts and causes of higher prices are central to its work.
NDOs not a reason to increase prices
The Authority is confident the benefits of the NDOs outweigh their costs, Westergaard says.
"The NDOs can be enacted quickly and will not materially increase costs for gentailers. They should not be used as a reason to increase prices.
"In fact we should see downward pressure on prices and more options for consumers over time as a result of increased confidence and competition."
Commerce Commission Chairman John Small says having these NDOs completes the first tranche of work the Energy Competition Task Force committed to when it launched its original programme.
Smaller retailers can compete on fair terms, Energy Minister says
Energy Minister Simeon Brown has welcomed the move, saying New Zealanders will benefit from this new rule and it prevents the country’s four biggest electricity generators from using their market power to squeeze out smaller competitors.
Smaller retailers can compete on fair terms, Brown says.
According to the Government, around the morning and dinner-time peak when households increase their power use, wholesale electricity prices spike.
The Government says: “Small retailers rely on hedge contracts with the big gentailers to manage that risk so they can offer competitive prices to their customers. Until now, the gentailers have been able to favour their own retail arms over the competition.”
Rising penalties
The Government says subject to legislation passing, penalties for serious breaches of the new rules will rise from a maximum of $2 million to up to $10 million, three times the commercial gain or 10% of a company’s turnover - whichever is greatest.
These penalties would likely be put in place in 2027.
Brown says: “A level playing field will encourage more competition, more investment and more innovation in the electricity sector. That means better prices and more choice for Kiwis.”
Long-term outcomes and compliance
Bridget Abernethy, chief executive of Electricity Retailers' and Generators' Association of New Zealand (ERGANZ), says the association supports measures that support a fair and competitive electricity market.
Members of ERGANZ include Contact, Genesis, Mercury and Meridian.
ERGANZ acknowledges that these amendments are an improvement to the original Level Playing Field proposals released by the Authority last year, Abernethy says.
"ERGANZ and its members have engaged constructively throughout this process and will continue to do so.
"It aims to work for the best long-term outcomes for consumers, while not introducing significant compliance burdens that add costs to consumers."
1 Comments
I'm not convinced the fix is always to allow competition. In fact in this case it appears to do the opposite; the smaller retailers do nothing other than sales and payments, the hard part (risk management) is done by the big gentailers, and they now have less reason to make that competitive.
We welcome your comments below. If you are not already registered, please register to comment
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.