A US economist unexpectedly vindicates the market model reformers want to kill

An endorsement break-up advocates didn’t want

With calls to dismember the four big gentailers reaching an election-year peak, along comes James Bushnell, professor of economics at the University of California Davis, to muddy the narrative. In an interview published on 7 September 2026, Bushnell said there were “lots of elements of the market here that I find really appealing.”

His argument is straightforward. Vertical integration, owning both generation and retail, is a rational response to the investment risk created by wildly volatile electricity prices. When wholesale prices can lurch from $38/MWh in late 2024 to $223/MWh in early 2025, having retail and generation under one roof lets a company hedge internally rather than betting the business on a daily spot market.

Bushnell knows what the alternative looks like. In the early 2000s California forced retail and generation apart, everything moved onto the daily spot market, and “that didn’t go so well.” One caveat worth flagging upfront: Bushnell was hosted here by ERGANZ, the industry body for retailers and generators. But he also peer-reviewed the 2025 Frontier Economics report on the NZ system, and his verdict on the core question, markets versus political processes for deciding what to build, is blunt: “generally markets seem to do better at this than political processes.”

The rebuttal that concedes the key point

Dr Geoff Bertram, visiting scholar at Victoria University of Wellington, flatly disagrees. His case is that Bushnell is importing a US mindset into a tiny market with effectively no competition, and that the benefits of internal hedging “go entirely to the owners of the companies. In other words, there’s nothing in this for consumers.” He has elsewhere called the market “almost completely locked up by a cartel”.

But Bertram concedes the engineering logic. A vertically integrated monopoly makes sense, he says, when electricity sits “in the hands of a non-profit monopoly. Once you make it a profit-oriented monopoly… game over for competition and it’s game over for consumers.” That is a real critique, but notice it is an argument about ownership incentives, not about whether integration itself is inefficient.

The numbers that keep the politics alive

None of this happens in a vacuum. The four gentailers made combined profits of around $1 billion in the most recent year, with Contact posting a record $423 million net profit and Genesis reporting a 14% lift in operating earnings even as retail bills climbed. Power prices rose 12% on average last year and about 8% in April. Fat profits and rising bills are politically toxic, which is exactly why the break-up line sells.

The industry pushback leans on history. BusinessNZ advocacy director Catherine Beard warned that a split would be an “own goal for consumers”, noting the current design delivered “some of the most affordable energy in the OECD” from 2010 to 2018. Genesis cited 10 independent reviews over two decades finding no evidence that structural separation would lower prices.

The variable the whole debate ignores

Here is the fact that should reframe the argument for any business owner. Gentailers control 85% of generation and 95% of firming capacity. Firming, the backup that guarantees supply when the wind drops or hydro runs low, is the insurance product that makes any new generation project financeable. If you need gentailer firming to get funding and gentailers are your competitors, you have a structural problem entirely separate from retail margins.

Worse, any new supply creates portfolio disbenefit for incumbents by pushing wholesale prices down and eroding existing portfolio value. That is a rational incentive to go slow. And the prize for getting it right is large. Transpower modelling cited by business groups suggests 20 additional TWh of supply could grow the economy by $30 billion a year through data centres and green tech.

What actually moves the needle

The most consequential intervention so far is not a break-up at all. The Electricity Authority’s new non-discrimination rules now require gentailers to offer hedge products to all buyers on an even-handed basis, targeting firming access directly. Meanwhile the physical picture is improving: renewables supplied 94.5% of generation in Q1 2026, and Beard points to 15 committed projects worth a 15% capacity lift.

There is one conflict neither side confronts. The government is both the regulator and the majority owner of 51% of Genesis, Mercury and Meridian. Bushnell’s endorsement is awkward precisely because it forces the honest question. If a sympathetic outsider says the structure is defensible, the case for reform has to be argued on investment and firming grounds, not on the comforting story that smashing a cartel will cut your bill.

Sources

• Elements of New Zealand electricity market ‘really appealing’ – visiting US expert (2026-09-07)
• Genesis boss defends gentailer model amid break-up push (2026-08-30)
• Consumers fed up with power companies making billions as bills rise, market commentators say (2026-08-21)
• Why New Zealand’s gentailer model is holding back energy investment (2026-08-19)
• Gentailer separation plan may help deliver $30 billion energy goal – business groups (2026-08-04)
• Breaking up NZ’s gentailers may be an own goal for consumers – Catherine Beard (2026-08-24)
• Power Play: How energy-rich New Zealand became so expensive for electricity (2026-08-10)
• Market performance review Q1 2025 (2025-05-08)