Genesis Energy defends transfer pricing policy after Electricity Authority ruling

Genesis Energy says it already fully discloses its internal transfer prices along the lines of those stipulated in a ruling this week from the Electricity Authority (EA).

The power generator and retailer said it welcomed the EA’s ruling that large generator-retailers must annually disclose mass market internal transfer prices, the methodology used to derive them, and their retail gross margins.

Chief corporate affairs officer Matthew Osborne said had Genesis supported greater disclosure of transfer prices and segmented reporting in its submissions to both the Electricity Price Review Panel and the authority.

The EA’s ruling comes as the smaller “tier two” power retailers turn up the heat on their larger competitors.

Electric Kiwi and Haast Energy Trading last month filed a formal complaint with the Electricity Authority (EA) against rivals and Contact Energy after the North Island’s rolling blackouts during a cold snap.

Electric Kiwi, Entrust, Flick Electric, Octopus Energy, Vector and Vocus were among the 15 retail companies to offer submissions to the authority on internal transfer pricing.

Genesis’s business is divided into wholesale and retail.

The transfer price is the price the wholesale business charges the retail business for the power it provides.

Osborne told the Herald the Genesis approach, over a number of years, had been to disclose that price and methodology by which it is arrived at, as part of its annual financial statements.

“The transfer price is the one that would put our retail business in the same position, and on the same footing, as a tier two retailer.

“Our retail business runs on that basis of that price and it’s also used in how we report the profitability of our retail business,” he said.

Genesis – the retailer – reports as if it was a separate business.

That way, Osborne said it gave greater transparency to outsiders regarding transfer pricing, and addressed concerns by those who allege the big generator/retailers can stifle competition by putting their own retail business at an advantages by selling them cheap power from their wholesale business.

Genesis calculates its power prices by using a three-year rolling hedge based on ASX futures pricing – not dissimilar to what a tier two retailer would have to do.

The retail arm then gets some certainty around the price it pays.

“That gives us a pretty good proxy for what an independent tier two retailer would have to pay if they go in the market and try and buy electricity for their customers on that basis,” Osborne said.

He added the EA’s decision had validated its approach.

“We don’t think that there is anything to be lost by adopting this transparency,” Osborne said.

“Anything that improves transparency and trust in the sector has got to be a good thing.”

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