Last week, the Electricity Authority (EA) released the Level Playing Field measures option paper (Paper)^[1], seeking feedback on an approach to Level Playing Field measures as proposed by the Energy Competition Task Force (Task Force) in September 2024.

The measures outlined in the Paper are intended to address issues the Task Force has identified relating to hedge contract related competition risks arising from much of New Zealand’s flexible generation being controlled by the four large generator-retailers, Contact, Meridian, Genesis, Mercury (together, the Gentailers).

Context and purpose of the Paper

The Task Force, established in August 2024 during a period of sustained high wholesale electricity prices, was commissioned to find “short-to medium-term actions to improve the performance of the electricity market.^[2]

The Task Force identified the importance of access to hedge contracts for independent retailers and generators to remain financially viable:

• Independent retailers face financial risk from exposure to spot prices if suitable hedging products are not available but must still meet their obligations to customers; and
• Independent generators with intermittent generation may struggle to remain economically viable without access to firming generation, which is typically secured through a hedge contract.

A hedge contract in the electricity market refers to a financial product that provides a fixed price for electricity for a determined period.

Currently, Gentailers largely dominate the market for hedge contracts, as they control much of the flexible generation used for hedging. The Task Force is concerned that Gentailer domination of hedging creates significant competition risks in the New Zealand market, so is proposing changes to the regulation of hedge contracts.

Proposed approach

The key proposal is the creation of mandatory non-discrimination obligations (Obligations) where Gentailers must give non-integrated retailers and generators access to certain products (such as hedge contracts) on substantially the same terms as Gentailers supply internally.

The Paper recommends imposing Obligations on Gentailers as soon as possible and is proposing a three-step implementation approach, which escalates the Obligations according to the Gentailers' response to the changes. The implementation approach is as follows:^[3]

• Step 1: Introduction of principles based mandatory non-discrimination rules while leaving Gentailers some latitude in how they comply.^[4]
• Step 2: If the Task Force is unhappy with implementation of the principles-based rules, more detailed non-discrimination rules will be put in place.
• Step 3: If the Gentailer response is still insufficient, the Task Force will require all Gentailer supplied hedge contracts to be traded through a regulated market on equal terms for all buyers.

The Task Force intends to develop the Step 2 and 3 escalations at the same time to allow for them to be implemented quickly if needed. The Task Force has also noted the potential for “virtual disaggregation”, which would require splitting the flexible generation capacity of participants who exceed a certain market share into two components (one that would be required to be offered to the market and one that could be used by the participant).

It is clear that the changes proposed by the Task Force under this Paper are substantial and will likely have significant implications for the electricity sector in New Zealand.

Next steps

For stakeholders interested in shaping these reforms, submissions on the Paper are due by 5pm Wednesday 23 April 2025.

If you have any questions about how the proposed interventions could affect you, or would like help making a submission, please contact one of our experts below.