In an election centred on New Zealand's cost-of-living crisis , it's perhaps unsurprising to see parties return to a familiar idea for tackling rising power bills: breaking up the big electricity gentailers.
Author
- Richard Meade
Adjunct Associate Professor, Centre for Applied Energy Economics and Policy Research, Griffith University
Both New Zealand First and the Greens want to split the big gentailers into separate generation and retail businesses.
The appeal is straightforward. If independent retailers could buy electricity on fairer terms, the argument goes, greater competition should bring household power prices down.
And prices are rising. The Electricity Authority found households and small businesses paid an average 6.8% more for electricity in the first half of 2026. But more than half of that increase came from higher network charges, with generation costs and retail margins accounting for much of the rest.
National, meanwhile, has focused its latest energy policy on those network costs, promising to review how lines companies are regulated.
But it hasn't gone as far as breaking up the gentailers - something Finance Minister Nicola Willis has argued would create "massive instability".
I have studied this area for decades. A review I conducted indeed points to some easily overlooked consequences of separating the two.
Why generation and retail go together
Combining generation and retailing gives electricity companies a critical advantage: protection against swings in wholesale power prices.
A gentailer can supply customers from its own generation, while buying or selling electricity on the wholesale market only as needed. A standalone retailer, by contrast, must secure all of its customers' electricity through purchases or contracts.
That becomes important when wholesale prices surge because hydro lakes are low, gas is scarce or demand is high. A retailer charging households a relatively stable price can see its costs soar while its revenue does not.
Long-term contracts can reduce that exposure, but suitable cover can be costly or incomplete. Owning generation provides another way to manage the risk, because generation costs do not necessarily rise with wholesale prices.
This is more than a theoretical concern. During Britain's wholesale energy shock of 2021-22, 29 suppliers failed , with weak finances and inadequate protection against rising prices leaving some particularly vulnerable.
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New Zealand experienced something similar in 2001, when surging wholesale prices prompted Natural Gas Corporation to sell its electricity customers to generators. During California's 2000-01 electricity crisis , separation and contracting limits also left major utilities exposed to soaring wholesale prices.
The same issue can influence investment. New generation requires substantial upfront capital and years of revenue, while retailers need dependable electricity supplies.
Combining generation and retail can give investors a ready customer base and reduce uncertainty. Separating them means those relationships must instead be established through contracts that are much less effective.
My research also suggests integration can encourage investment because more efficient generation can strengthen a company's position in the retail market.
There is another, less obvious effect that a co-author and I have studied : wholesale price impacts. A generator with a retail arm knows higher wholesale prices can hurt that side of its business when it needs to buy electricity. A generator only selling into the wholesale market does not face the same constraint.
Separation could therefore increase incentives to seek higher wholesale prices, even as it creates more retail competition.
There is also the risk of two sets of mark-ups. If generators and retailers separately add a margin to the same electricity, customers ultimately pay both. Economists call this " double marginalisation ", which integration can avoid.
None of this means gentailers necessarily charge fair prices, or that greater competition could not benefit consumers. But any gains from breaking them up need to be weighed against the effects on risk, investment and wholesale prices.
Would more competition really mean lower bills?
Integration can make it harder for standalone retailers to compete. But measures that help independent retailers do not necessarily leave consumers better off.
A recent OECD review backed measures to help independent electricity retailers. But its example of international "best practice" involves separating monopoly electricity networks - the poles and wires - from businesses operating in competitive parts of the market. This prevents owners of essential infrastructure favouring related businesses over competitors.
Breaking up gentailers is different because generation and retailing are both competitive businesses.
The Electricity Authority has already introduced " level playing field " rules governing gentailers' contracts with independent retailers. My analysis found such rules can benefit standalone retailers while leaving other firms and consumers worse off.
The authority considered concerns about possible consumer harm when introducing the rules, but ultimately rejected them. Their effects should be judged by what happens to bills, security of supply and investment - not simply whether more retailers enter.
The research I have reviewed and undertaken suggests forced separation is more likely to harm than help consumers.
That puts the onus on those proposing a break-up. How would separate firms manage wholesale price risk and sustain investment? Would greater retail competition outweigh the risk of higher wholesale prices and cascading profit margins?
More retailers may mean more retail competition. But the real test is whether restructuring the market delivers lower prices overall, and a more secure electricity supply.
Richard Meade was funded in 2021 by an industry body representing New Zealand electricity gentailers and retailers to survey the economic literature on vertical integration versus vertical separation in electricity sectors. In 2025 he submitted on his own account to the Electricity Authority on its proposal to force generator-retailers to offer supply to rivals on non-discriminatory terms.
