Integrity Briefing: The Govt's energy reforms are a cowardly capitulation to the gentailers

After months of anticipation, the Government has unveiled its electricity market reforms. The verdict from across the political spectrum is damning: the package is a damp squib.

Despite soaring power prices and an energy crisis that saw factories shuttered and households shivering, the coalition’s package is startlingly modest. Newsroom journalist Marc Daalder was the first to label the plan a “damp squib” that ignores 8 of the 10 key recommendations from the official electricity market review. Where its own independent review called for bold structural change, the Government has delivered little more than tinkering at the margins. Similarly, RNZ’s Giles Dexter observed, the package “stops well short of any major shake-up”.

Such timidity points to one of two conclusions: either ministers fail to grasp the scale of the crisis, or - more cynically - they grasp it perfectly well and have chosen to protect the powerful interests who benefit from the dysfunctional status quo.

Strong rhetoric preceded the announcement. Energy Minister Simon Watts promised “significant but surgical” changes, and the independent review warned that without “bold action” “irrevocable harm could be done to the New Zealand economy”. Yet the actual reforms are underwhelming. They are largely a rehash of existing plans with a few new tweaks.

In fact, only four out of ten measures announced were genuinely new, Daalder noted, with the rest being previously signalled policies given a fresh coat of paint. Rather than seizing the moment to fix a broken market, the Government delivered what BusinessDesk’s Pattrick Smellie described as essentially waving the chequebook – throwing money at symptoms while avoiding deeper cures.

Avoiding the structural reform we need

Perhaps the greatest failure is the Government’s refusal to pursue any meaningful structural reform of the electricity sector. The electricity review, conducted by consultancy Frontier Economics, floated big changes, including breaking up the vertically integrated generator-retailers (the “gentailers”) or even the state stepping in to secure backup supply.

But almost all such recommendations were rejected. The Government explicitly ruled out forcing a separation of generation and retail, despite widespread concerns that gentailers exploit their dual role to stifle competition and gouge consumers. Also off the table was any hint of re-nationalising the power companies or even modestly increasing public ownership.

This is a huge missed opportunity. The gentailers – Meridian, Genesis, Mercury (all majority state-owned) and Contact (privately owned) – dominate our power system and have every incentive to keep supply tight and prices high. As NZ First Associate Energy Minister Shane Jones bluntly put it, “the gentailers are not offering security… They exist to offer net profit after tax”.

The competitive, affordable market promised by 1990s reforms has simply never materialised. Instead, we got a cosy oligopoly that prioritises dividends over investment. According to one analysis, since the 1990s, the big gentailers paid about $9 billion in dividends (mostly to the government as shareholder) but invested only around $1.5 billion in renewal generation capacity – so it’s no surprise we’re short of energy. That lack of new supply has driven prices through the roof, yet the Government still shied away from forcing these companies to change their behaviour or structure.

Successive governments (both Labour and National) have baulked at breaking up the gentailers or treating power as a public utility. The coalition had a chance to finally tackle this “underlying problem”, but instead it avoided any measures that would truly upset the oligopoly’s grip.

Even the review’s suggestion to fully privatise the state’s remaining shares (to let gentailers raise capital more easily) was rejected. So, ironically, the Government won’t re-nationalise, yet also won’t sell down, clinging to a half-pregnant mixed-ownership model that satisfies no one except the companies themselves. The end result? The gentailers sail on largely unscathed by these reforms, free to continue business as usual.

Doubling down on fossil fuels over renewables

If failing to restructure the market wasn’t bad enough, the Government’s main “solution” is to double down on fossil fuels. This is a deeply retrograde step in the middle of a climate crisis. Rather than jump-starting investment in renewables, Wellington has reached for the easy option of more gas and even coal.

The reform package touts a new procurement process for an LNG import terminal, expected by 2027, to boost gas supply for electricity generation. Energy Minister Watts framed it as securing “reliable back-up supply for dry years”, but in reality this moves New Zealand further into fossil fuel dependency. Likewise, the Government had already reversed the ban on new offshore oil and gas exploration – bringing it forward to this year – and even earmarked $200 million of taxpayer money to co-invest in developing gas fields.

Incredibly, the Commerce Commission is blessing a plan for the big generators to stockpile coal at Huntly power station as insurance against winter shortages. These are desperate measures that suggest the Government’s vision of “energy security” is stuck in last century’s fuels. Climate advocates note it could take years for any new gas to come online – far too late for the current crunch – and meanwhile our progress toward clean energy is reversed.

Of course, the gentailers already have plenty of consented renewable projects sitting unbuilt by choice. So, the problem isn’t a lack of fossil gas, it’s that our power companies won’t invest in wind and solar when they can keep milking aging gas/coal plants and banking huge profits.

Financial commentator Bernard Hickey argues the root of the energy ‘shortage’ is simple: power companies failed to build renewables and instead funneled profits out as dividends. Wind and solar are actually now the cheapest sources of new generation, according to MBIE data, yet our market’s incentives have led to chronic underinvestment in them. By choosing to prop up fossil fuels instead of directly tackling that investment gap, the Government is doubling down on the very dynamic that created the crisis. It’s a short-term political fix that will leave us further behind in the transition to affordable clean energy.

Policy capture by vested interests

Why would a Government facing an angry public, an economy hurting from power costs, and clear expert advice still produce such a weak, status-quo friendly plan? The answer appears to be policy capture and political compromise.

It is difficult to view these reforms without seeing the influence of the very vested interests they were supposed to regulate. The big gentailers and energy execs have lobbied fiercely to prevent any structural change that might threaten their profits. And it seems they succeeded. The coalition’s ideology skews pro-market and pro-business, making them remarkably receptive to industry talking points.

Some of this can be explained by who’s actually in charge – the ministers and their advisers themselves. For example, Cameron Burrows (Luxon’s chief of staff and former Electricity Retailers’ Association CEO), Matt Burgess (chief policy adviser and energy economist, previously with the NZ Initiative), and Joe Ascroft (policy director with a PhD in gas market dynamics, formerly of the Taxpayers’ Union) staff the Prime Minister’s office. The Government isn’t just close to industry, it is part of it.

Frontier Economics politely noted in its report to Government that majority government ownership in gentailers might “distort investment outcomes”, hinting that political considerations impede the companies raising capital for new projects. But more bluntly, it’s an open secret that “successive governments have always baulked” at forcing gentailer separations due to fear of disrupting a powerful sector.

In the lead-up to the announcement, energy companies sought to head off intervention by voluntarily agreeing to small concessions (like a strategic coal reserve, or minor contract tweaks) and by downplaying talk of excess profits or price-gouging. The National-led coalition, filled with free-market true believers, was ideologically predisposed to avoid heavy-handed regulation or ownership changes. As Energy Minister Watts insisted, changing who owns assets won’t solve the fundamental issue – a convenient argument that aligns perfectly with gentailers’ interests in avoiding a breakup or buyout.

We also saw internal political compromise at play. NZ First’s Shane Jones (an associate minister) loudly floated renationalisation of the entire sector and splitting up gentailers as options. He even wrote a paper to coalition partners warning that “market solutions that don’t deliver… have run their course” and that unless prices fall “we are going to witness mass unemployment and deindustrialisation”. Jones, ever the maverick, was voicing what many ordinary New Zealanders feel – that the profit-driven model is failing the country.

His ideas were clearly overruled by National and Act, who would never countenance such interventionist moves. “I’ll probably come off second best… I’m not the minister,” Jones admitted of his push to renationalise. Indeed, he did. The final package contains none of the radical options he championed. This speaks volumes about the coalition’s priorities: they gave more weight to private sector comfort over public good, and to their own laissez-faire instincts over their populist partner’s alarm.

The result is policy heavily shaped by the preferences of incumbent industry players. The gentailers avoid any threat to their vertically-integrated empires. The government even reassured them it would remain a 51% shareholder and chip in capital if needed for new projects – effectively guaranteeing their access to public funds while demanding no public control in return.

It’s a cosy deal for the power companies, which amounts to regulatory capture. Meanwhile, oil and gas interests got the explorations and subsidies they wanted. In short, the vested interests won out: the reforms reflect what the energy lobby and a profit-focused coalition were willing to accept, rather than what experts or the public interest demanded.

Of course, there’s also an element of coalition ideological gridlock producing today’s limp package. On one side sits National’s free-market purism, embodied by Minister Watts, who maintains the market is fundamentally “doing what it should do” and resists any major state intervention. Allied with them is Act’s libertarianism, with David Seymour shooting down any talk of renationalisation as a threat to “investor confidence”, driven by a desire to preserve the value of state assets for future sell-downs.

On the other side is NZ First’s populist interventionism, championed by Shane Jones, who rails against the gentailers for “shorting the market” and has openly floated radical options like structural separation and renationalisation.

In this ideological gridlock, all bold options were vetoed. National and ACT vetoed NZ First’s radical ideas, while NZ First wouldn’t accept its partners’ preference to do nothing. The result is a compromise – what one commentator rightly called a “discordant” grab-bag, representing the bare minimum all three parties could agree on: throw some public money at the problem while changing nothing of substance. The entire process was arguably political theatre from the start.

Who pays the price? High bills, energy poverty and deindustrialisation

The tragedy of these half-measures is that ordinary New Zealanders will continue to pay the price – literally. Power prices have already been climbing at an alarming rate, and nothing in this package is likely to bring quick relief to households struggling to pay their bills. Over the past year, retail electricity prices rose faster than overall inflation, and an estimated 300,000 households had overdue power bill fees added because they couldn’t afford to pay on time. There were 40,000 disconnections for non-payment in 2023 – a shocking level of energy hardship in a developed country.

The National-led Government’s response to this crisis of energy poverty is astonishingly feeble. By declining to impose price caps, windfall profit taxes, or more direct market interventions, ministers essentially left consumers at the mercy of the gentailers’ “market” – the same market that has already proven it will squeeze many Kiwis into heat-or-eat dilemmas.

As CTU economist Craig Renney observed, treating electricity as a mere profit source has led us to a point where manufacturers shut down and families shiver; instead, power needs to be treated as a basic public utility serving the public interest.

The social impacts are very real. Even with subsidies like the Winter Energy Payment, many on low or fixed incomes “still cannot afford power bills, and are going to bed early or using log burners” to stay warm. These reforms offer little to those people. A stronger regulator and a future capacity framework do nothing to help a pensioner facing a 25–40% hike in their bill this year (as was widely forecast).

The Government has essentially told the public to hang tight for the market to maybe sort itself out. Meanwhile, dividends will keep flowing to private shareholders and government coffers, even as tens of thousands of households are pushed into energy hardship. It’s a policy choice that prioritises abstract market principles and fiscal interests over human well-being.

The economic damage will also continue. Expensive, unreliable energy is toxic to industry. New Zealand has already seen major employers like pulp and paper mills and even Amazon Web Services cancel projects or shut operations largely due to exorbitant electricity costs. Earlier this year an energy analyst estimated the winter power crisis cost the economy $300 million in lost production, and potentially up to $1 billion in foregone exports over recent years as major gas-using industries repeatedly had to scale down.

The latest GDP figures showed energy-intensive manufacturing was the biggest contributor to economic decline in Q2. Deindustrialisation is no longer a theoretical threat – it’s happening now, as high power prices “drive industry out of New Zealand” (to quote the Frontier report).

Therefore, even business leaders are alarmed: a recent Auckland Business Chamber poll found 49% of Kiwis want the gentailers broken up and 62% support the government directly underwriting the new generation to bring prices down. “If decisive action isn’t taken… the current state of economic activity could be as good as it gets,” warns Chamber chief Simon Bridges. Yet decisive action is precisely what the government failed to deliver.

Uniting critics: Calls for bold change from all sides

What’s striking is how broad the consensus is that these reforms are inadequate. From typically pro-market business voices to worker advocates, nearly everyone agrees the government needed to go much further. “We can’t just keep tinkering”, urges Consumer NZ’s Powerswitch head Paul Fuge – “something needs to change…bold reform is needed to ensure the market worked for people”.

The Auckland Business Chamber’s 10-point plan for energy urged everything from easier consenting to the “bigger issues such as the separation of gentailers”. Bridges, a former National Energy Minister now heading the Chamber, is essentially imploring his own political camp to wake up: “Kiwis and households have had enough… They expect the government to confront the sector’s underlying problems and take steps that will bring down energy costs”.

On the other side of the spectrum, union leaders are equally scathing. The Council of Trade Unions has outright called for bringing the electricity generators back into public ownership. CTU President Richard Wagstaff argues that partial privatisation and profit-driven markets got us into this mess of high prices and underinvestment. “They’ve heard for years that the market’s going to solve their problems, and it clearly hasn’t. We’re calling time on it,” Wagstaff says. He’s urging a “fundamentally different approach” – treating electricity as the public utility it should be, run for the benefit of workers and consumers.

The CTU even has a step-by-step proposal: use the Crown’s existing dividends from gentailers to buy them back over time: “The faster the gentailers distribute dividends, the faster those firms will come back into public hands,” their plan argues. This idea, while radical to some, directly addresses the root of the problem, shifting control from profit-maximising companies to the public interest.

Notably, even within the Government’s own ranks there is recognition that stronger medicine is needed. Shane Jones’ outspoken advocacy for renationalisation and even building new state-owned power stations shows that the biting critique of the status quo isn’t limited to opposition parties or commentators.

When a senior minister from one of the coalition parties says “the days of treating energy prices as a private commodity … have run their course”, you’d think the Government might take heed. Yet the official reforms largely ignore these voices. The coalition’s ideological blinders – an aversion to big-government solutions and a deference to market players – have left it deaf to even the constructive criticism from experts, unions, and businesses alike.

Weak reforms, high stakes

In the end, the Government’s electricity reform package looks less like a turning point and more like a capitulation. It is mediocre in ambition, timid in execution, and seemingly captured by the very interests that have benefited from the broken status quo.

Yes, there are some positive morsels: giving the Electricity Authority sharper teeth to “crack down on bad behaviour”, allowing lines companies to invest more in local generation, and committing the Crown to co-invest in new projects are all fine as far as they go. But without tackling the fundamental market structure and incentives, these steps are akin to rearranging deck chairs on the Titanic.

The Government has basically asked the power sector politely to invest more and play fair, while at the same time writing it a cheque for an LNG terminal and promising not to touch its lucrative setup. Little wonder Marc Daalder and others are calling this out for what it is.

New Zealanders deserved an energy reset that would bring real relief from price gouging and insecurity. What we got was a grab-bag of half-measures that leave the existing power cartel intact. The gentailers remain free to keep doing what they’ve done for years: under-invest in renewables, over-charge consumers, and pay out fat dividends. The Government’s message to them is effectively: “Carry on, we’ll help cover the risks (and by the way, here’s some gas and coal to tide you over).”

Meanwhile, families will keep struggling with eye-watering bills, and industries will keep cutting back or closing down when the power price spikes. This isn’t just a policy failure – it’s a social and economic failure that will bite harder in the years to come.

New Zealand stands at a crossroads with its energy future. Will we continue to tinker and temporise, allowing vested interests to dictate outcomes, or will public pressure force the bold changes needed to reclaim electricity as a public good?

The Integrity Institute would urge the latter. It’s time to break out of the complacency and confront the systemic dysfunction head-on – whether through breaking up the gentailers, re-nationalising assets, or massively accelerating public investment in renewables. The Government’s current reform may be a damp squib, but the debate it has stirred shows a growing consensus: The electricity market, as currently structured, is failing New Zealand. The longer we accept timid half-measures, the longer Kiwis will bear the brunt of high prices, energy poverty, and lost economic potential. The power crisis demands true leadership and vision – not this muddling through. Anything less is simply unacceptable when the stakes are so high for New Zealand’s future.

Dr Bryce Edwards

Director of The Integrity Institute