Insights from the latest internal transfer price and retail gross margin data

The Electricity Authority Te Mana Hiko has today published the retail gross margin (RGM) and internal transfer price (ITP) data for the 2023/24 financial year, which has provided some useful insights.

“The disclosure regime is an indication, but not a full picture, of what is going on in the electricity market,” says Airihi Mahuika, General Manager – Legal, Monitoring and Compliance.

“Last year’s post implementation review into the regime highlighted that ITP and RGM data is inadequate for assessing retail competition. We have expressed concerns about competition risks arising from a lack of visibility of gentailer costs,” said Mahuika.

The Authority, through the Energy Competition Task Force, has been reconsidering the regime and the Level Playing Field measures options paper includes a proposal to require gentailers to establish economically meaningful ITPs to address these risks.

In the meantime, the data released today shows smaller retailers have increased their prices, and their margins are slightly higher (on average), despite increasing costs.

On average, smaller retailers’ prices for residential and small business customers are now higher than the four large gentailers’ prices. This is a reversal from 2022 when smaller retailers’ prices were lower on average than the gentailers’ prices.

At the same time, some smaller retailers have been losing market share over the last 12 months. While this could be consistent with competitive outcomes – consumers switching to other retailers to get a better deal - it may also suggest restrictions on the ability of smaller retailers to compete.

The 2023/24 RGM and ITP data

The ITP is used for accounting purposes and reflects the price a gentailer ‘sells’ energy from its generation arm to its retail arm. The RGMs for gentailers are based on these ITPs.

The ITP data shows:

• ITPs have increased for all gentailers for 2023/24.
• Increases were similar to previous years for each gentailer, and broadly similar across all gentailers.
• ASX futures prices also increased over the same period.

The RGM is the retailer revenue remaining once the cost of electricity, metering, distribution, transmission and levies have been subtracted. We focused on the RGM for retailers with more than 1% of all installation control points.

The RGM data for smaller retailers (the calculation of which does not involve ITPs and is therefore fit for purpose) shows that since 2023:

• There was a large increase in smaller retailers’ revenue per MWh.
• Costs also increased for smaller retailers as a result of increases in all components of costs faced by retailers – wholesale costs, distribution costs (both local network area and transmission), metering costs, and levies.
• The net effect was that smaller retailers’ margins increased a small amount.