Two leading North Island business groups are calling for the retail and generation arms of the major energy companies to be divided up and run as different legal entities.However, they have stopped short, for now at least, of calling for a full structural separation into separately owned companies that would involve forced asset sales.Currently, the big gentailers, including Contact, Mercury, Meridian and Genesis, can both generate power and sell it through retail arms to homes and businesses.Critics have long claimed that allowing power companies to have both retail and generation capacity, or vertical integration, makes it hard for new competitors to enter the market and reduces the incentive to build new generation.The gentailers reject that, arguing that vertical integration reduces the risk of price volatility in the system.However, a proposal released by the Auckland Chamber of Commerce and the Northern Infrastructure Forum on Tuesday claims there are deep-seated issues in the energy market and that a form of separation is needed to help unlock New Zealand's energy potential.Northern Infrastructure Forum executive director Barney Irvine said that gentailer separation would be operational rather than structural, at least in the first instance."Each gentailer would be required to operate its generation and retail businesses as legally distinct entities, with separate boards, management and commercial decision-making."This is not a structural break-up. There are no forced asset sales. It simply means the internal deal-making that currently keeps the contracts market illiquid is replaced by real market trading."The government has recently taken steps to force gentailers to treat competing retailers the same way they treat their own retail arms when supplying hedge contracts.However, Irvine said it would not achieve the same result as operational separation.The proposal also calls for changes around what is known as firming, or the backup power sources needed when there is not enough wind or hydro generation in the system to meet demand. In New Zealand, this tends to be done via coal, gas or diesel-powered power plants.The gentailers currently control 95 percent of the firming mechanisms.The new proposal calls for the creation of new long-term energy service agreements, or LTESAs.These would see new generation companies or projects sign long-term contracts with a government entity, essentially functioning as a revenue support mechanism.The proposal said this would help independent projects get final sign off without having to rely on firming options.It would do so by giving the new project the option to sell all or part of its generation to the Crown-backed entity at a competitive fixed price."This is not a subsidy or a case of corporate welfare," Irvine said. "The project is required to prepay the government for any net support received."In other words if it got more money from the government than it needed, it would have to pay it back.Chamber of Commerce chief executive Simon Bridges said estimates by Transpower show New Zealand could grow the economy by $30 billion annually if it can bring on an additional 20 terawatt hours of supply.He said that was real and achievable, but it would require policy makers to address the two key structural issues identified in the new report.