The Commerce Commission has raised significant concerns about Contact Energy’s proposed $1.9 billion acquisition of Manawa Energy, citing potential risks to competition in the electricity market. Despite the regulatory scrutiny, Contact remains committed to the deal, arguing that the merger would strengthen the industry and improve energy resilience.
Regulator Flags Competition Risks
In a Statement of Issues released on February 5, the Commerce Commission outlined four primary concerns regarding the acquisition. The watchdog is not yet convinced that the deal would not “substantially lessen competition” in the electricity market, emphasising the risks posed by increased market concentration.
The key issues highlighted are:
The supply of hedging contracts for smaller retailers:
Manawa currently sells uncommitted power through hedging contracts, which help smaller electricity retailers manage price volatility. The regulator fears a merged Contact-Manawa could limit the availability of these contracts, making it harder for independent retailers to compete.
The potential to influence spot electricity prices:
The Commission believes the enlarged company would have a greater ability to impact wholesale electricity prices, raising concerns about market stability.
Higher spot electricity prices:
A reduction in competition could result in increased prices, affecting both residential and commercial consumers.
Less overall competition in the electricity market:
With fewer competitors, the regulator warns that market coordination could emerge, making it easier for the major players to control prices and limit market access for new entrants.
Contact Energy Defends the Deal
Despite the regulatory pushback, Contact Energy has reiterated its confidence in the acquisition. In a statement to the Australian Stock Exchange (ASX), Contact CEO Mike Fuge described the merger as “compelling,” arguing that the combination of Contact and Manawa would create a stronger, more resilient electricity company with a diversified generation portfolio across New Zealand.
“Contact and Manawa hydro assets are complementary, with different seasonal generation profiles, which will help Contact to better manage dry year risk and to sell larger volumes of fixed price electricity into the market than we could independently,” Fuge stated.
The company remains optimistic about securing regulatory approval and aims to complete the transaction by the end of 2025. Under the deal, Contact will acquire Manawa’s 25 hydroelectric schemes across the country and assume its $400 million debt.
Market Impact and Industry Response
The proposed merger would significantly alter the structure of New Zealand’s electricity sector. Currently, Contact is one of the four major generator-retailers (gentailers) alongside Mercury, Meridian, and Genesis Energy. Manawa, the fifth-largest generator, operates solely as a wholesale electricity supplier after selling its retail business to Mercury in 2022.
If the deal proceeds, Contact and Manawa’s combined market share would reach 24% of the country’s total electricity generation, further consolidating power among the largest players. Industry analysts have noted that past electricity mergers have drawn similar scrutiny, with regulators prioritising market competition over consolidation.
The stock market, however, responded positively to Contact’s determination to move forward with the acquisition. On the ASX, Contact’s share price jumped 5.2% following the announcement, reflecting investor confidence in the deal’s long-term benefits.
Next Steps: Regulatory Review and Public Submissions
The Commerce Commission has set a deadline of March 31, 2025, to make a final decision on the merger, although it has indicated that this timeline could be extended if further review is needed.
In the meantime, the regulator is accepting public submissions on the proposed acquisition. Interested parties, including Contact, Manawa, and industry stakeholders, have until February 21, 2025, to submit their responses, with cross-submissions due by February 28, 2025.
Ultimately, the Commission will determine whether the merger aligns with New Zealand’s competition laws and broader energy policy goals. If the deal is blocked, Contact may need to propose additional concessions or modifications to gain regulatory approval.
What’s at Stake?
The outcome of this case could have significant implications for New Zealand’s electricity market, affecting pricing, competition, and future mergers in the sector. While Contact argues that the acquisition will enhance energy security and efficiency, regulators and smaller market players fear that further consolidation could limit competition and drive up prices.