Steve Baron: Time to Pull the Plug: Why New Zealand Should Nationalise the Electricity Industry

When did you last look at a power bill without wincing? We all feel the sting of those rising numbers. And what do we do? What we’ve all been conditioned to do—compare rates from other providers. Sure, there are nearly 40 electricity retailers in New Zealand, creating an impressive illusion of choice. But scratch beneath the surface and a different picture emerges: the four big gentailers—Genesis, Contact, Mercury, Meridian—control over 80% of the retail market, with the remaining 35 companies fighting over the scraps. It’s like having dozens of corner shops while four supermarket chains control most of the food supply.

Here’s the uncomfortable truth our politicians won’t say out loud: we’re caught in a market structure that’s delivering outcomes closer to a cartel than genuine competition. And while the evidence is contested, the pattern is as clear as a winter power bill hitting your letterbox.

The Great Competition Charade

The 1990s electricity reforms came with a simple promise: break up the old ECNZ monopoly, create competition, and watch prices tumble as companies fought for customers. What we got instead was something far more sophisticated—a market that maintains the appearance of competition while delivering non-competitive outcomes.

Yes, dozens of smaller retailers exist, and some offer genuine innovation—real-time pricing, renewable-only plans, even prepay options. But here’s the rub: these independents face a structural disadvantage that market theory alone can’t overcome. The big four control over 95% of generation while also dominating retail. Independent retailers must buy wholesale power in a market where their main retail competitors are also the main sellers, creating an inherent conflict of interest in pricing and risk management.

The Government’s Moral Hazard

Here’s where the story gets truly uncomfortable. The government continues to receive substantial dividends from its 51% stakes in Genesis, Mercury, and Meridian. In the 2024 financial year alone, Genesis paid the government $65.7 million in cash dividends plus $20.9 million in shares. Mercury and Meridian continue paying regular dividends of over 20 cents per share annually, generating tens of millions more for government coffers.

But these are just the regular payments. The special dividends tell an even more dramatic story: Mercury paid $150 million to the government in 2009, while Meridian delivered an eye-watering $800 million special dividend in 2006, plus $100 million in 2001. By 2008, Meridian alone had paid $2.1 billion in total dividends to the government.

Think about that for a moment: every time these companies extract higher profits from struggling families, the government gets a bigger dividend cheque. This creates a perverse incentive structure that would make any ethicist wince. The same government that should be protecting consumers from excessive power prices is financially benefiting when those prices rise. It’s like having the fire chief own shares in the match factory.

The numbers paint a concerning picture. Residential electricity prices have risen roughly 60% from 2006 to 2022—an average of 3% annually that consistently outpaces inflation. Between July and August 2024 alone, wholesale prices jumped from around $300/MWh to over $800/MWh. Meanwhile, these same companies report healthy profits to shareholders while Kiwi families choose between heating and eating.

When Economists Agree, Listen

Having a degree in economics, I know that economists rarely agree on anything—and that methodology matters enormously. The debate around electricity market power is fierce, with industry defenders dismissing studies as flawed while consumer advocates see smoking guns. But when multiple independent analyses point in the same direction, patterns emerge that demand attention.

Frank Wolak’s 2009 Commerce Commission report estimated that over seven years, additional economic rents of $4.3 billion had been extracted compared to what should have been the case with truly competitive pricing. Critics questioned his methodology, but Stephen Poletti’s 2021 study using different approaches found even higher market rents of $5.6 billion—37% of total revenue—from 2010 to 2016 alone. Another study by Browne, Poletti and Young calculated $2.6 billion in market rents for just 2006 and 2008.

Yes, these studies have limitations and face legitimate criticism. The industry argues that high wholesale prices during dry years reflect genuine scarcity, and that gentailers often absorb losses when they’re net buyers during price spikes. But the consistent finding across different methodologies suggests something systematic is occurring.

The Commerce Commission’s Alice in Wonderland Moment

Here’s where the story gets truly surreal. Faced with overwhelming evidence of market manipulation, the Commerce Commission concluded that the gentailers were “using market power to maximise profits in a purely legitimate way” and found no breach of competition law.

This is like a referee watching a rugby match where one team has twice as many players on the field, then declaring the game fair because no specific rule was broken. The system itself is the problem, not individual rule breaches within that rigged system.

The government’s response? An “Energy Competition Task Force” established with the Commerce Commission. Another committee to study a problem while families struggle with power bills that represent an increasingly large chunk of household budgets. Meanwhile, the industry points to billions in new renewable generation investment as evidence that the market is working. But investment in supply doesn’t address the fundamental question of whether we’re getting competitive pricing.

Why Nationalisation Makes Sense (But Not for the Reasons You Think)

Before you dismiss this as a socialist fantasy, consider the facts. Three of the four major gentailers are already 51% government-owned, and the government has received billions in dividends over the years. We’re not talking about seizing private assets—we’re talking about resolving a fundamental conflict of interest.

But here’s where it gets complex. Electricity can’t be treated like a typical commodity because it’s essential infrastructure, yet it can’t be made artificially cheap without creating serious problems. When prices don’t reflect real costs, consumption explodes. Make power too cheap, and usage could double as people stop caring about conservation.

The solution isn’t to eliminate profit entirely—we need returns sufficient to fund the massive investment in new generation that our growing population and electrification goals demand. The question is: what level of return is appropriate for an essential service, and who should capture that return?

A fully nationalised system could operate with cost-reflective pricing that covers genuine investment needs without excessive profit extraction. We could implement tiered pricing structures—affordable rates for basic household consumption with higher rates for heavy usage. The billions currently flowing to shareholders could fund aggressive energy efficiency programs and faster renewable development.

The Political Courage We Need

I’ve covered New Zealand politics long enough to know that politicians of all stripes are terrified of the “N-word”—nationalisation. It conjures images of Soviet-style central planning and bureaucratic incompetence. But this isn’t about ideology; it’s about market failure on a massive scale.

The current system appears to have created a multi-billion-dollar annual wealth transfer from ordinary Kiwis to shareholders, with the government collecting its cut through dividends while families struggle. Whether you accept the $4.3 billion market rent figure or discount it heavily for methodological concerns, even a fraction of that amount represents a substantial penalty for living in a country with a concentrated electricity market.

But the real issue isn’t just the size of profits—it’s the fundamental misalignment of incentives. The government currently profits from high electricity prices through its dividend receipts, creating an impossible conflict between its duty to citizens and its role as a shareholder.

Energy leaders themselves are now calling for urgent sector reform, saying “gentailers are squashing competition.” When even industry insiders acknowledge the system is broken, it’s time for politicians to show some backbone.

Time to Act

After three decades, it’s time to admit this experiment in electricity market deregulation has failed. We were promised that breaking up the old ECNZ monopoly and introducing competition would deliver lower prices and better service. Instead, we’ve created a sophisticated oligopoly that extracts billions while families struggle with power poverty.

The evidence is substantial, the economic case is plausible, and the public is paying the price. But beyond the academic studies and market structure debates lies a simpler moral question: should an essential service that every family needs be optimised for dividend payments to shareholders, or for the welfare of the people who depend on it?

Every month we delay serious structural reform is another month of potentially unnecessary wealth extraction from families and businesses to prop up a market structure that puts the government in the morally questionable position of profiting from essential services.

We wouldn’t accept this level of market manipulation in banking or telecommunications (perhaps that’s another article in itself!). Why do we tolerate it in electricity? The answer is simple: because we’ve been convinced that any alternative to the current system is somehow radical or risky.

The real risk is doing nothing while our electricity bills continue climbing and billions in economic value disappear into the pockets of shareholders—including, uncomfortably, the government itself through dividend receipts that create perverse incentives.

It’s time to pull the plug on this failed experiment. Full nationalisation isn’t the radical option—continuing with the status quo while families struggle with power poverty is the truly radical choice.

After 30 years of evidence, the verdict is clear. It’s time to stop defending a market experiment that never delivered what it promised.

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Steve Baron is a New Zealand-based political commentator and author. He holds a BA with a double major in Economics and Political Science from the University of Waikato and an Honours Degree in Political Science from Victoria University of Wellington. A former businessman in the advertising industry, he founded the political lobby group Better Democracy NZ. https://stevebaron.co.nz