The ‘Bradford reforms’ 25 years on

The Bradford reforms heralded the birth of the domestic retail electricity market as we know it today.

"Lower prices and a real choice of who supplies your electricity – that's what the Coalition Government's electricity reforms are all about,” Bradford said in a 1998 government press release. 

We did a deep dive into the electricity reforms for our podcast Consume This. You can hear directly from Max Bradford, Jenny Shipley and other power pundits about how they feel the electricity sector is doing 25 years on.

At Consumer, we’re not seeing the thriving competitive market the architects of the reforms envisaged.

What the Bradford reforms did

The reforms split the Electricity Corporation of New Zealand into three competing state-owned enterprises: Meridian, Genesis and Mighty River Power (now Mercury). Contact Energy had been previously spun out of the Electricity Corporation in 1996.

The reforms also separated the ownership of lines and energy by requiring the (then) 35 local power companies to separate ownership of their electricity lines and electricity supply businesses.

This second part of the reforms was perhaps the most contentious because most of the local power companies had some form of community ownership.

Did the reforms give consumers more choice of electricity retailer … yeah, nah

On paper we certainly have more choice of power provider. In 2004, there were less than 10 electricity retailers. Today there are around 39 retail brands competing to supply around 1.9 million households in New Zealand.   

Yet we argue that because power generators can also be retailers, we don’t have true retail competition.

These ‘gentailers’ (a mash-up of the words generator and retailer) have dominated the market since the reforms. Around 71% of consumers are still with one of the four original gentailers (or its subsidiaries).

Comparing the figures for market share in 2004 vs 2023 reveals how little has really changed in 20 years (see graph below). Despite 20 years of retail competition, the share for independent retailers has only grown by a paltry 13%.

Letting the power generators also be retailers enables them to maintain a stranglehold on the market, because the other independent retailers have to buy electricity on the wholesale market from the gentailers, who they are also competing against.

This is a fundamental flaw in the electricity market structure. It makes it very hard for independent retailers to make inroads. The flaw serves to lower competition, which reduces innovation and increases prices. 

Electricity prices have continued to go up

Despite there being more electricity retailers, in real terms (adjusting for inflation), residential electricity prices are at least 35% higher than they were at the time of the reforms (1999). 

To this day, many consumers feel misled by the promise that a move to increased retail competition would help keep a lid on prices.  

The 2023 Consumer Advocacy Council found that 75% of respondents who are not confident the electricity market is delivering fair prices to customers are also not confident there will be better value for money in the next five years. 

Yet, while there is no doubt that residential prices have risen since the reforms, can we say with certainty these rises are solely due to the reforms?  It could also be argued that prices would have been even higher had the reforms not occurred.  

Factors that have put the cost of power up

To get to the truth about the cost of electricity we need to take in the bigger picture. 

What other factors occurred between 1999 and 2023 that impacted on price?

• We built lots of power stations. About 30% of New Zealand’s total current generation capacity has been added since 2000. We also retired some large thermal power stations that had reached the end of their economic lives.

• We upgraded the lines networks. After years of deferring any meaningful expenditure on the major electricity transmission networks, Transpower (the National Grid) and local lines distribution business have spent several billion dollars since 2000 on much needed upgrades. This has significantly increased capacity and security of supply, but has also been paid for through increased prices.

• Gas prices increased, which meant higher costs for thermal electricity generators.

• Before the Bradford reforms, some local power companies charged businesses higher electricity prices to make residential power cheaper. During the first 10 years of deregulation (which started before the reforms, in around 1990 to 2000), these subsidies started to be removed and this trend continued after the Bradford reforms, meaning householders’ power bills went up.

• GST increased from 12.5% to 15%.

More people switching power providers could bring about cheaper power

While we have more competition in the market, with about 39 electricity retailers wanting your business, people aren’t engaging with the market as was hoped.

Many people don’t believe there can be much of a cost difference for something that is essentially the same from retailer to retailer. According to Consumer NZ’s latest survey of electricity consumers (in 2023), 35% of households believe retailers all charged about the same for electricity.   

This means people stay with their current provider – 42% of New Zealand households have been with their current provider for more than five years. 

Many consumers have simply never switched, and as a result are likely to be paying more for their electricity than they need to be.  

This is despite the large savings on offer through switching. Our Powerswitch data shows the median annual saving through switching provider is $385.

Our research has also shown that consumers of large retailers are generally less satisfied than those of their smaller (and often cheaper) competitors.   

The electricity market isn’t working in a cost-of-living crisis

The lack of consumers switching to lower-cost providers is particularly concerning given the cost-of-living crisis. 

It pains us that people are cutting back on power use, and being cold as a result, but are not switching to a cheaper provider.

Our 2023 electricity consumer survey found that energy costs are a major concern for 29% of households. One in five people are having trouble paying their power bills, while 12% indicated they have had to cut back on heating due to cost concerns.  

This has real consequences. Cold houses are a health risk – particularly for respiratory health – with vulnerable consumers, such as children and older people, the most susceptible. Respiratory diseases cost New Zealand nearly $7 billion every year and account for one in ten of all hospital stays. 

In addition, people living in deprived households are admitted to hospitals for respiratory illness at three times the rate as those more well off.  

To us, this all indicates that the electricity market is not the thriving competitive market that the architects of the reforms envisaged.

See what you can save

Are you ready to see what you could save? And do your bit to bring down the country’s power prices? Check out Powerswitch now – it only takes a few minutes.

What about the future of electricity?

With a growing reliance on electricity for a renewable energy future, what will this mean for the electricity sector? Find out what our pundits think in episode two of Consume This.

It’s not all doom and gloom – we are starting to see glimmers of positive change. Technology like smart meters, electric vehicles, batteries and solar could enable real positive innovation in retail. 

We could in fact be on the cusp of a new wave of change – if we allow it.   

We believe the time has come for a new round of reforms – reforms that could finally deliver the promise of those original reforms, 25 years ago.  

The first step will be ensuring power generators can’t be electricity retailers.