Power market task force drops gentailer separation idea

A task force to improve competition in the electricity market, run by the sector’s two regulators, proposed investigating the operational separation of gentailers but this did not appear in the group’s final mandate.
The Energy Competition Task Force was created in August to respond to concerns around high wholesale power prices and a lack of competitiveness in the market. It consists of staff from the Electricity Authority and the Commerce Commission.
In an August 22 briefing, ahead of the announcement of the task force, the authority advised ministers on its proposed remit. This included a pledge to “investigate level playing field measures, such as operational separation and nondiscrimination rules for gentailers”.
The final work programme for the task force, however, states only that it will “investigate level playing field measures such as non-discrimination rules as a regulatory backstop”.
Between the August 22 briefing and final decisions, the proposal to look into operational separation dropped off the table. Newsroom understands the change was made after Cabinet met and discussed the remit of the task force, although the regulators are statutorily independent.
The difference is significant. Non-discrimination rules would require gentailers to treat their own retail arms in the same way they treat other retailers, rather than giving them special treatment. But the operational separation measure would be much more substantive, forcing the gentailers to operate their generation and retail arms as separate entities – one step short of breaking them up entirely.
The plan for the task force was drawn up in mid-August as wholesale spot prices soared to close to $1000, amidst low lake levels, low wind and a gas supply crunch. Two paper mills were closed indefinitely – they later announced a full closure.
The Electricity Authority’s proposal to investigate operational separation was submitted to ministers a day after Associate Energy Minister and New Zealand First deputy leader Shane Jones met with the regulator and criticised its handling of the situation afterwards. He told reporters that if the authority didn’t crack down on the gentailers it could “end up as roadkill”.
“We need to see instant results from [the authority] moderating the behaviour of the gentailers. At a time when New Zealanders in regional New Zealand are being sent to the scrap heap, we’ve got these corporate grandees celebrating dividends in the parlour and boasting how rich they are,” he said at the time.
Earlier that month, he was more explicit about calling for structural change, joining independent retailers who have long called for the gentailers to be broken up.
“For a long time I’ve felt there are some significant deficiencies in the actually structural makeup of our wholesale energy market,” Jones said in early August.
Such calls have traditionally fallen on deaf ears, however. Successive governments have declined the opportunity to break up or structurally alter the gentailers, which are half owned by the Crown. And decisions on this issue by the coalition Government are up to Energy Minister Simeon Brown, not Jones.
Brown said the work programme of the task force was set by the regulators, not ministers.
“The Energy Competition Task Force brings together regulatory and competition experts from the independent regulators. The work programme of the task force is set by its members. I expect the task force to look at measures that are in the long-term best interest of New Zealand households and businesses,” he said.
Brown wouldn’t say whether Cabinet discussed the issue or whether ministers then discussed the remit of the task force with the regulators.
“The work of the task force is being led by two independent regulators with input from MBIE. Ministers are being regularly updated on the work of the task force.”
Electricity Authority chair Anna Kominik and Commerce Commission chair John Small, on behalf of the task force, said they were looking at “various measures to ensure a level playing field between gentailers and independent retailers”.
“The task force announced a confirmed work plan last week and is now investigating a number of level playing field measures for use as a regulatory backstop if the earlier steps are not effective. While operational separation was included in the initial scope of work, a broad range of measures and possible triggers are now being considered.”
Green Party energy spokesperson Scott Willis has submitted a Member’s Bill to the parliamentary ballot which would require operational separation of the gentailers.
“We’ve had a Government that makes a big noise about this, but we’ve become used to the nondelivery from this Government,” he told Newsroom. He said non-discrimination rules alone looked like “tinkering around the edges” when a more forceful response was needed.
“This shows both the timidity and this unwillingness to address the broken system. We don’t just need to disrupt the market a little bit, we need a reinvention of the electricity system that will prioritise people and planet over profits.”
Willis said he has a meeting with Brown next week to discuss his proposed legislation.