From July, Contact Energy, Genesis Energy, Mercury NZ and Meridian Energy must supply hedging contracts on even-handed terms to all buyers, under new non-discrimination obligations introduced by the Electricity Authority.
New competition rules are coming for New Zealand's biggest energy companies. From July, the four large gentailers — Contact Energy, Genesis Energy, Mercury NZ and Meridian Energy — will be required to supply risk management contracts, known as hedges, on an even-handed basis to all buyers under non-discrimination obligations (NDOs) introduced by the Electricity Authority.
The rules are the result of a consultation process launched last year after smaller independent energy retailers claimed they could not compete fairly with gentailers, which operate both generation and retail arms. The gentailers denied acting anti-competitively, but the Electricity Authority has pressed ahead with code amendments to the Electricity Industry Participation Code 2010.
What hedging is and why it matters
Hedging involves fixed-price future contracts that retailers use to protect themselves against sudden spikes in the electricity spot price during periods of generation shortage. Large gentailers with their own generation capacity have been able to use these contracts to manage their own risk, and smaller retailers argued they were being denied access on comparable terms — making it harder for them to offer competitive prices to households and businesses.
Under the new NDOs, the four large gentailers cannot favour their own retail arms on price or non-price terms when supplying hedges. The Electricity Authority said the change would strengthen competition and increase transparency across the market.
What this means for consumers
Acting Chair of the Electricity Authority Erik Westergaard said the obligations could be enacted quickly, would not materially increase costs for gentailers, and should not be used as a reason to raise prices. The intent of the rules is to create a more level competitive landscape for smaller retailers, which over time could benefit consumers through greater choice and more competitive offers.
Whether those benefits materialise in practice depends on how effectively the rules are enforced and whether smaller retailers are actually able to access hedging contracts on fair terms going forward.
This article is for general information only and is not personalised financial advice. Seek advice from a licensed financial adviser (registered on the FSPR) for guidance specific to your situation.