Electricity Industry Bill

CHRIS HIPKINS (Labour—Rimutaka) Link to this

Thank you very much for this opportunity to speak on clause 3 of the Electricity Industry Bill. I will make some introductory comments. Labour will be opposing this bill. We opposed it at the first reading, we opposed it through the select committee process, and we will continue to oppose it now. This bill simply dusts off Max Bradford’s old policies of more market, more privatisation, and more competition in the electricity sector. I can see that Roger Douglas is getting very excited about the bill already, but it will do nothing to address the three fundamental priorities in the electricity sector: security of supply, affordability, and sustainability. It does nothing to address those things, and that is the reason why Labour will be opposing it.

New Zealanders are struggling to make ends meet at the moment. The National Government’s GST increase, which will of course apply to electricity bills, will do nothing to help them with that particular predicament. Therefore, this bill is simply another blow because it does not deal with the fundamental issues that New Zealanders are currently facing. Those fundamental issues concern the cost of living going up, which the Electricity Industry Bill does nothing to deal with, at all.

Labour members took a very active interest in hearing submissions during the select committee process. We were concerned about a number of the issues raised, and we were concerned that the analysis does not appear to have been done that would justify many of the provisions in the bill. I will be talking about more of those issues. We were particularly concerned about the asset swap involving the Waitaki water catchment system, which is something I will talk more about when we get to that part of the bill. The case has not been made for that swap. Treasury raised concerns about it, and so did the Institute of Professional Engineers New Zealand and so forth. So we will be raising a number of concerns regarding that when we get to that point in the bill.

This bill, as I mentioned in my introductory comments, does nothing to deal with National’s major election promise when it came to electricity prices. Gerry Brownlee, John Key, and Bill English went up and down the country saying that power prices were too high, and saying that Labour had let power prices continue to go up and had not done anything about that. But what do we know? Well, here is a bill. What does it do? It does not address the issue of power prices, which is what New Zealanders were all expecting the Government to deal with when it came into office, and when it introduced this bill into the House. This bill is silent on power prices. In fact, it will do nothing to control the exorbitant rise in electricity prices that people have seen. It will do nothing to address the concerns raised by the Commerce Commission in its recent report on the electricity market. In fact, it raises a whole lot of new concerns. It simply goes back to the failed experiment that Max Bradford started in 1998.

One of the criticisms that Gerry Brownlee keeps coming back to the Labour Opposition on is that he says we had 9 years to deal with that so why did we not do something? Well, it is very difficult to unscramble an egg. The Government sold Contact Energy and privatised a lot of the retailers and lines companies, to the point—

Hon NANAIA MAHUTA (Labour—Hauraki-Waikato) Link to this

Clause 3 is a very specific clause in the Electricity Industry Bill. When we listened to the previous speaker, my colleague Chris Hipkins, we heard him raise questions that were fundamental and germane to clause 3, “This Act binds the Crown”. The question is whether the Crown is capable of achieving what it said it would achieve. We have very serious questions about that, because if this legislation addresses the huge differential between domestic and industrial energy consumers, then the Crown will be bound by the solutions in the legislation. Will it be able to deliver on that issue? I think not. But we can explain that further on in the debate on the bill. Will this be the bill to ensure that there is oversight in terms of fairness of price setting in the electricity sector? The solutions offered in this bill all bind the Crown, so we think not. We can explain that further later on.

Will the asset swaps being promoted be the structural change that increases efficiency in the sector? We have grave concerns about the fact that assets swaps may not deliver what the Government thinks that they will, yet the Government is bound by the solutions it has promoted to the public—that this is the structural change that will increase overall efficiency and, perhaps, price benefits to consumers. However, as the point was made by Chris Hipkins, and also in the first reading debate and subsequent submissions to the Finance and Expenditure Committee, a number of concerns about asset swaps are raised of the structural change not delivering what the Government says it will.

So we have a concern that clause 3 will not be honoured. We have a concern that clause 3 will not at all be delivered on, in terms of ensuring that overall the bill delivers the gains and improvements to domestic consumers. We can debate that ad infinitum in the later stages of the bill, but it is really important to ensure that the Minister of Energy and Resources takes a call at some point to uphold some of the expectations he has created on the solutions from this type of reform, which will deliver benefits primarily to domestic consumers. We do know that there are huge differentials between the rates of increase of domestic energy prices in comparison to industry users. We know that domestic consumers are feeling the pinch and that they want the Crown to be bound by solutions that will work for them and that we do not think that this bill will deliver. So I am sure the Minister will be only too eager to take a call on that particular matter.

It is a short clause but it is the most crucial clause. If the Minister is true to his word to many New Zealanders throughout the debate that this bill will deliver the gains and that it will tackle the price increases that many households have felt, then he should be able to explain that in the Chamber today. We know that if anything is important in this bill to the people listening, it is that they just want to know that it will benefit them in the pocket, where it matters most. Far too many New Zealanders, those on fixed incomes, kaumātua, are paying far too much for their monthly power bill. They want a solution that will deliver a real benefit step change to them at home and in the pocket. I do not think asset swaps will do that, I do not think that the limited role of the Electricity Authority will achieve that, and I certainly do not think in the immediate to medium term we will see a huge drop in price through shopping around. I think there are some huge challenges in the shopping around message that the Government is promoting. It applies to electricity but not gas, if one is swapping one’s providers. I think there are some oversights in the way the Government is pushing through with this legislation.

But, as I said, clause 3 is very short. It binds the Crown. My proposition is that it will bind the Minister in terms of the expectations he has certainly created that this bill will deliver benefits to domestic consumers, and I do not think it will do that.

CLARE CURRAN (Labour—Dunedin South) Link to this

I am pleased to speak in the Committee stage of the Electricity Industry Bill. There is absolutely no evidence that introducing further competition and asset swaps will tackle the huge price variance between domestic and industrial power users. Despite this Government’s pre-election promise to lower power prices, National has seriously taken its eye off the ball. New Zealanders want to pay lower power prices, and they were led to believe that National would deliver affordability. The Government has said the legislation means there will be more competition and more stability in the electricity industry. Although there may be a bit more competition happening right now, stability or affordability is certainly not happening in the electricity industry. Essentially, the effect of this legislation is to make things worse for the vast majority of New Zealanders, such as the families who are struggling to make ends meet and our senior citizens who are living on fixed incomes, and all the while their electricity prices continue to go up.

As members have heard, Labour does not support this bill. It has not supported this bill at any stage. Thousands of New Zealanders are currently feeling the squeeze when paying their electricity bills, and they will not receive any help from the Government’s electricity market review or this bill. In fact, things will just become worse for them. After promising that the Government would take action, the Prime Minister has offered very little to help New Zealanders who are finding it difficult to pay their energy bills when their family budgets are so tight. That is about to get added to by the 2.5 percent GST rise, and by allowing companies to use the emissions trading scheme as an excuse to price gouge between 5 and 10 percent, with nothing but a meek warning. National promised it would do everything it could do to take the sharp edges off the recession and help struggling Kiwi families. But the Government’s electricity market review and the bill miss the point. Nowhere in the overview of the bill does it even mention constraining or reducing prices.

Any reforms of the electricity sector need to deliver, as members have heard, on three priorities: sustainability, security of supply, and affordability and predictability of prices. These reforms do not go any way towards addressing any of these priorities. Nor do they give us any clue as to how to balance the competing considerations at stake. Transferring assets between power companies and reshuffling the bureaucracy is just smoke and mirrors, which does not guarantee any immediate relief for Kiwi power users.

I will refer back to what the Government said it wanted to achieve with this bill, which was more competition and stability, and I will talk a little about Dunedin, which is one of the coldest places in the country during winter, so electricity bills are quite high there. I will refer to an article in the Otago Daily Times last Friday that reported that Contact Energy lost more than 2,000 Dunedin customers in the same quarter that it controversially hiked prices up by more than 9 percent. It had 47 percent of the 50,000-plus market, or more than 24,600 customers, in the May quarter. At the same time that Contact Energy increased its prices by up to 9 percent, the Prime Minister and the Minister of Energy and Resources warned companies not to use the emissions trading scheme as an excuse for price increases when they learnt of its review in June. Contact Energy said at the time there were actually two increases: a Dunedin-specific 6 percent increase to reflect the cost of generation and supply, and a nationwide 3.2 percent increase to meet the costs of the emissions trading scheme. Meanwhile, at the same time Mercury Energy increased its prices by 3.3 percent. Just over a week ago, Contact Energy announced that it would increase its prices again when GST rises on 1 October.

Hon GERRY BROWNLEE (Minister of Energy and Resources) Link to this

I want to address a couple of things that came up in the previous discussion, on clause 3, and are being repeated in debate on this part of the Electricity Industry Bill. Firstly, the Labour Opposition says it has concerns around security of supply, prices, and sustainability. In looking at those three things, I say that this review of how electricity is governed and the regulations around the production and sale of electricity comes on the back of a period under the previous Government where we had several electricity crises—

The CHAIRPERSON (Hon Rick Barker) Link to this

Before I call the next speaker, I remind members that although a range of bills have gone through on wide-ranging debates, this bill is not one of them. We have had two speeches from either side and I think that is fair enough to set the scene. We have had one excellent example of how one focuses on the material and introduces other points, but we are on Part 1, which consists of technical aspects of the bill. I expect the speakers from now on to stay within the Speaker’s rulings and Standing Orders for the Committee stage of a debate.

Hon DAMIEN O’CONNOR (Labour) Link to this

Absolutely, Mr Chairman. I refer to clause 4, “Purpose”, which states: “The purpose of this Act is to provide a framework for the regulation of the electricity industry.” The Minister in the chair, the Minister of Energy and Resources, gave a well-meaning but useless speech in the Chamber and, I have to say, he has done it before. I recall that Minister making such a speech, or a similar one, anyway, with good intent back in the 1990s. The question I ask of him is where “Mad Max” is.

Hon DAVID PARKER (Labour) Link to this

I will first state my agreement with the Minister in the chair, the Minister of Energy and Resources, in respect of his comments about the effect of the emissions trading scheme on power prices. I agree with him that the emissions trading scheme has not been responsible for all of the power price increases that we have seen. We know that partly because, at least in theory, the electricity price is driven by the long-run marginal cost of new supply. The long-run cost of new supply in the electricity system has long foreseen the cost of carbon coming. Indeed, when I was the Minister some years ago, Contact Energy told me that it had already factored into its investment decisions—and, indeed, into its share price—the effect of the cost of carbon on electricity prices and investments. So again, I agree with the Minister that although the increases of late that have been blamed on the emissions trading scheme are partly a consequence of that, they are also partly not.

Of course, that begs the question that if it is not all related to the emissions trading scheme, then what is it related to? The answer to that question is perhaps that there is insufficient competition. The purpose of this legislation is set out in clause 4 as: “The purpose of this Act is to provide a framework for the regulation of the electricity industry.” The reason that we need a framework for the regulation of the electricity industry compared with other goods and services that are supplied, particularly when it comes to the way in which electricity is delivered, is that the market has severe constraints and it is arguable that it is not competitive enough. That is why the Government intervenes and, therefore, regulates the market to try to enhance competition.

The question we have to ask in New Zealand is whether, after the years since we had the so-called market reforms that were pushed upon the country by Max Bradford originally, there is sufficient competition to justify competition being the control on price. If there is insufficient competition to control price, then we have to give up on having the competitive market as the appropriate way to control price, because it is a fiction, and what lies behind that fiction is excessive pricing.

We have heard from Clare Curran about the example she gave in Dunedin. Before I move to that, I say that one thing the Minister ignores in respect of the prior decade is that the major driver of the increase in electricity prices in New Zealand was the Māui gas running out. Māui gas was subject to a price control that went back to the Muldoon Government. As the gas ran out, there was the need to remove the cap on the price of gas so as to encourage more exploration, and that was actually the main driver of price in the early to mid-2000s. It does not explain increases in price since that date, and real questions remain as to whether the market is sufficiently competitive. What is driving the Government’s behaviour now is that it has a desire for dividends from State-owned enterprises.

The Government is not interested in real competition. It is not interested in real controls on an appropriate price for electricity. What the Government wants is dividends and capital distributions from the State-owned enterprises to the Government’s coffers. We know that because the Government has been open about it. The Government said that one of the things it wanted from the State-owned enterprises was improved financial performance. The only way we can get any significant change in the financial return from the major electricity State-owned enterprises is to put up the price. If the price is put up, a higher profit is made and therefore a higher dividend can be paid to the Government. Please do not pretend that it is anything other than that.

In respect of whether there is proper competition, I am just about ready to conclude that there is not. No one can explain the enormous differential between industrial and residential tariffs in New Zealand. It is higher than anywhere else in the world that I know of; there is an enormous difference. I think that is very good evidence that there is not sufficient competition at wholesale and retail level in residential markets.

I will give another example of where this is bad. Alexandra sits next to one of the biggest hydro facilities in New Zealand—the Contact Energy dam on the Clyde River. Alexandra pays one of the highest electricity costs—

Hon DAVID PARKER (Labour) Link to this

Part 2 sets up the electricity industry governance and creates a new authority called the Electricity Authority, which effectively replaces the Electricity Commission. We should not fool ourselves that this makes a substantial difference to competition in the market. It does make a difference, in that it takes away some of the functions that one would think need to have some governance, like how clean our electricity is, a focus on renewables, and a focus on the efficiency of use. Those sorts of functions are stripped out of what used to be called the Electricity Commission and, by and large, they are not replaced in the new authority called the Electricity Authority. I cannot understand the logic for that step backwards, and I ask the Minister in the chair, the Hon Georgina te Heuheu, to explain why the Government calls that progress.

But, more particularly, I am interested in what the Electricity Authority will be doing that the Electricity Commission could not do, in respect of setting market rules that will improve competition in the market. That is what the Hon Gerry Brownlee told us from the chair, just some minutes ago. He said that these changes will reduce the pressure on prices by improving competition. I cannot understand how that can be. I cannot see anything in Part 2 that materially changes the authority’s powers from those of the existing commission. I come back to the issue that I started to address in the discussion in the first part of the debate: how can the Minister do anything but conclude that we do not have real competition in the electricity markets?

I refer again to the example that we have not had a response from the Government on yet, in respect of Alexandra power consumers. I expect this issue will have been raised by Jacqui Dean, who I see is in the Chamber.

Hon NANAIA MAHUTA (Labour—Hauraki-Waikato) Link to this

I have lodged Supplementary Order Paper 163, which has a particular emphasis on the role of the Electricity Authority. I draw the Committee’s attention to the Supplementary Order Paper and its intention. My amendment to clause 17 of the Electricity Industry Bill would insert the words “and environmental sustainability” after the words “efficient operation”. The intent of clause 17 as it stands is missing looking at how environmental sustainability can be taken into account in terms of the work and role of the authority. The authority can play an important role, and from what we have heard from the Minister of Energy and Resources, other than citing an intention to have increased investment in geothermal energy, we need to look at the whole investment landscape of non-thermal energy sources and what can be done about leadership in that area. I believe that by including that amendment the Government would be sending a positive signal of leadership in that it would be looking at the whole integrated way in which energy is generated from mainly non-renewable sources. That is certainly my intention going forward.

My amendment to clause 18(1) would add other functions to the Electricity Authority, first inserting paragraph (k): “to ensure that electricity is produced and delivered to all classes of consumers in a fair manner:”. My intention in tabling that amendment is to ensure greater fairness across the sector. There have been a number of contributions from members about price differentials between residential or domestic users vis à vis industrial users. The authority can play a strong role to ensure that there is greater fairness in price setting, and Labour believes that the Committee could give its attention to that in making amendments to the bill.

Second, paragraph (l) requires the authority “to undertake monitoring of environmental impacts of electricity generation and ensure that an environmentally sustainable approach is taken in the development of electricity generation.” That amendment refers, in part, to the point that I made earlier. When we think about how energy is generated in our country, we see that there is far too much reliance on the thermal generation landscape. Certainly, Labour believes that renewables are the way forward, that leadership must be given by the Government, and that it needs to be clearly set out in a bill like this one. It is Labour’s intention to go through, in some detail, the various debates and outline the reasons why we believe that the Government must give leadership.

I was heartened to hear the Minister say that increased investment in geothermal is a good thing, but we cannot leave it to chance. We have to be really firm that the Government should direct greater geothermal investment. In fact, we can be the leading edge in the international landscape in terms of our contribution in geothermal energy; that is what the Government should do. More important, with regard to our natural resources we can play a key role in increasing our commitment to renewable energy generation and leading-edge technology in that area. That is a bigger debate than is afforded by this bill, but it is the type of future and vision that Labour sees going forward. It is simply not correct for the Minister to say that Labour wants to go back to the position that we were in. The world has moved on; Labour has recognised that. We know that the future requires a stronger emphasis on environmental sustainability, and that energy generation has to take greater account of renewable sources of generation. That is the future. Leadership must be shown in that area; the Government cannot simply leave it to chance. The role of the Energy Authority, if it is to be as the Minister has outlined, should be to ensure environmental sustainability in the setting of the electricity generation market.

I want to speak briefly with regard to the authority, given that the previous speaker, David Parker, eloquently raised a number of issues about the role of the authority. I want to come back to a number of other Supplementary Order Papers, but for the purpose of these clauses in Part 2, I just highlight that the role and function of the authority is somewhat narrow, and I believe that including the amendments in my Supplementary Order Paper will set the authority on a landscape of looking at where New Zealand is best headed in terms of energy generation. That is the kind of future that New Zealanders want to see, and they know that it requires leadership. We cannot leave the State-owned enterprises to their own devices to go down a path without some direct guidance from the Government and the Minister in charge. The role of the authority will be paramount to that, given that the Minister has delegated to the authority a number of roles and responsibilities.

For that purpose, I am hopeful that the Committee will consider those particular amendments to clause 17 and 18 to be positive ones that will achieve that objective. Kia ora.

CHRIS HIPKINS (Labour—Rimutaka) Link to this

I am happy to take a call on Part 2, “Electricity industry governance”, and, in particular, I want to talk about the establishment of the Electricity Authority and the regulatory arrangements that are in place. I start by acknowledging the comments the Minister made about what Labour would do and whether we think that everything is perfect as it is operating now. The clear answer is that it is absolutely not. Generally speaking, we agree that the electricity market has not lived up to expectations set about 12 or 14 years ago when Max Bradford first established the market through the Electricity Industry Reform Act 1998. So, definitely, it does not work. The issue therefore relates to the fact that the electricity market did not live up to expectations, and it raises the question of what we can do to make sure that it operates more effectively, given that we cannot go back. There is no way to go back to what we had before, so we must ask what we can do and where we can go from here.

The previous Labour Government decided that the establishment of the Electricity Commission to provide much more oversight to the electricity industry was the way to go, and Labour still believes that. We still believe that the electricity market needs to have a body that provides much wider oversight, and that deals not just with the pure functioning of the mechanics of the market but also with issues of affordability, sustainability, and security of supply. So the three planks that Labour put forward are security of supply, sustainability, and affordability of pricing. Does Labour think that the Electricity Authority, as constituted by this bill, will deliver on those things? The clear answer is no.

Under this bill, the Electricity Authority’s objective is to promote competition in, reliable supply by, and efficient operation of the electricity market for the long-term benefit of consumers, but I do not think the Electricity Authority will be able to do all of those things.

This bill transfers the approval of Transpower’s grid upgrade plans away from the Electricity Commission, as it is now, to the Commerce Commission. I think that is quite a significant move. One of the reasons that I am concerned about that is that we need overall coordination and an overall approach to the electricity industry. This bill continues to fragment everything in the same way that the Electricity Industry Reform Act deregulated the market in the late 1990s. I do not think that this legislation will lead to a more effective operation of the electricity market. When it comes to the grid upgrade, we have to consider the alternatives to approving a grid upgrade. We can do that effectively only if we consider all of the other elements of electricity generation, like greater efficiency in the use of electricity, and demand-side reduction, which relates not just to efficiency but to reducing demand. We need more effective distribution of electricity generation, so that we do not have to rely on transmitting electricity from the South Island to the North Island when it is raining a lot, or the other way when it is not. We need to consider all of the alternatives to a grid upgrade. The Commerce Commission will not be able to do that; it will have a much narrower focus. So I am concerned that transferring that authority from a body that has a wide overview of the electricity sector to one that is very narrowly focused will not help the Government to meet the objectives that it is setting out.

The promotion of energy efficiency is transferred to the Energy Efficiency and Conservation Authority. Once again, I come back to the idea that electricity efficiency cannot be addressed on its own without reference to other parts of the puzzle, like transmission, distribution, pricing, and effective operation of the market. We need to consider efficiency as part of a wider, overall package. One of the concerns I have is that the Energy Efficiency and Conservation Authority will become a small body on one side that deals with electricity efficiency, and the rest of the electricity sector, including the Electricity Authority, will therefore think it is not part of their purview. Actually, electricity efficiency and the efficient use of energy has to be integral all the way through the electricity system. It cannot simply be parked off to one side with the Energy Efficiency and Conservation Authority. I agree that some streamlining could be done, but this bill goes far too far by transferring all of that responsibility purely to the Energy Efficiency and Conservation Authority.

Another part of the bill that I am concerned about relates to the Minister of Energy and Resources and the Minister of Consumer Affairs being the final arbiters on all issues of fairness. That is concerning, because, ultimately, it will mean that for consumers who are concerned that the market is not operating fairly, in that power price increases are not fair, the only people they will be able to go to under this legislation are the Minister of Energy and Resources or the Minister of Consumer Affairs. That places a huge burden on the Ministers. It also means that a consumer who wants to complain is less likely to make any traction. Ministers are notoriously difficult to pin down at the best of times. They will not have the time or the resources—and the public will not have access to the Ministers—in order for the system to operate effectively.

The Electricity Authority established under this bill will not have any responsibility for environmental sustainability. The Government says that it is still committed to the target put in place by the previous Labour administration to have 90 percent renewable electricity in New Zealand. This bill states that the Electricity Authority will have no regard to that and no role in ensuring that happens. So when will it happen? It will not simply happen miraculously. It will not happen by being aspirational and talking about it. We have to put some incentives in place if we want there to be more renewable electricity, which was one of the things that the previous Labour Government was focused on. We were focused on ensuring that our electricity system was more sustainable and that there was a higher reliance on renewable electricity. The Minister of Energy and Resources acknowledged that fact in the brief contribution he made just a moment ago. He talked about the fact that there was more renewable energy generation. He talked about geothermal energy generation in particular. When the previous Labour Government was in office, there was a big investment in wind generation and geothermal energy.

In New Zealand we rely on and take for granted our hydro system. It is the backbone of our entire electricity system. We are very fortunate that over the last year or two, it has rained quite a lot, so we have not had any risk of electricity shortages. Gerry Brownlee, I am sure, like all Ministers in the previous Government, gets the hydrology summary on a daily basis and goes through the changes in lake levels overnight to see whether they are tracking up or tracking down. For all of the time that he has been the Minister of Energy and Resources, the hydro levels have been fine. He has had a dream run in that regard, whereas Pete Hodgson and David Parker had a bit of a nightmare scenario when it came to rain not making it to the right places in the country. That was a key contributor to why we had those energy savings campaigns from, I think, 2001 to 2003.

Overall, we cannot ignore the environment when it comes to our electricity system. The Electricity Authority not needing to have any regard to the environment whatsoever is a very retrograde step, because we are dependent on the environment when it comes to our electricity generation. If we want to focus much more on renewable energy, and if we want to hit that 90 percent target of renewable energy generation, which the Government talks about, then obviously we will need to continue to focus on the environment and on making sure that our electricity comes from renewable sources.

I want to talk about the issue of stability of power prices, which the Minister raised. Under this legislation, the Electricity Authority will have no responsibility for considering issues of power prices at all. Gerry Brownlee’s response to that is that if power prices are going up, people can just switch power companies. In Gerry Brownlee’s world, when it howls with rain, people go outside to look at their meters to see how much electricity they have used, and then they go back inside and look on the Internet to see which power company will give them the best price. In Gerry Brownlee’s little fantasyland, consumers are supposed to be doing that on a daily or weekly basis. In reality, I ask who is going to do that. I ask who will actually monitor their electricity price on a daily or a weekly basis. It is not realistic. In fact, it is realistic only if we move to the type of model set up by Meridian Energy’s subsidiary Powershop, where people engage in the market and buy electricity on a “pay as you go” basis. The Powershop people thought that this bill was a bad idea until they were muzzled by Gerry Brownlee and told that they were not allowed to speak about it any more. They had to take down blog posts that criticised Gerry Brownlee and this legislation. The Powershop model is actually quite innovative and provides additional choice for consumers, but we should not overlook the fact that for most consumers the idea that they will be checking their meters reading every day or every week, going on the web, finding out what the lowest power price is, and then switching power companies all the time is simply not realistic. It is a joke.

Hon SHANE JONES (Labour) Link to this

I stand to add further fuel to our words of opposition to the Electricity Industry Bill. Part 2 of this bill reminds one of moving electrical deck chairs on the base of a waka that is going to sink. Despite these changes in institutional positions, deep down the underlying question that every New Zealander is bedevilled by remains unanswered. This bill will not lessen the differential between what we as garden-variety Kiwis pay for power and what manufacturers and a host of other industrial users pay for power. Neither will it lessen the cost, the burden that every New Zealander faces in relation to their power bills.

The restructuring options that Mr Brownlee has brought to the Chamber began with his musings in the Commerce Committee back between 2005 and 2008. He organised a body of work to take place to find whether there was a better way to squeeze more dough and efficiencies out of the State-owned enterprises. He focused on the energy State-owned enterprises. I suffered for a short period of time with my presence on that committee whilst he was the chair. He is a jolly fellow; however, he completely misunderstands the deep problem here. The problem is that we have reached a point in New Zealand at which these institutional changes of a filigree nature are not going to resolve the underlying problem. The underlying problem is that the notion of competition for this essential service has not worked since the time of the 1990s. I personally look forward to the day when power is surrendered back in this direction away from the bureaucrats and away from the staff who run the State-owned enterprises, who are largely beholden to no one. It is an actual fact that there is more accountability and more interest in the career of an ordinary civil servant than either responsibility or responsiveness from the people who run those companies, the chief executive officers, the staff members—I will not comment on the boards of directors, because they have recently changed as a consequence of Mr Brownlee’s purge. I might give them an opportunity, brief though I hope it is, to prove themselves. But the real force blocking the types of changes that my colleagues refer to are the people who man—or should I say people—the positions inside these institutions.

There will be no change to price. There will be no change in relation to the quality or the volume of competition, which these sets of changes are based on. Will this organisation be more efficient? Will the existence of two quangos improve upon what the earlier organisation is doing? No. Why? Because, broadly speaking, we have always had at least two options: keeping the old model, which was destroyed by Max Bradford, or going far right out, as the kaumātua of the House, the Hon Roger Douglas, whose hair has turned from grey to white over the last week or three, would say—a complete sale of those assets into private hands, and in that way achieving the sorts of efficiency outcomes we require. Naturally, we will never agree to that.

So the test is not so much about the effectiveness of each provision; it is about whether this rearrangement actually delivers a cheaper service. No, it will not. Will it make the institutions more responsive not only to the consumers but to their proxy—this House? Unfortunately for the people of the land, their interests are being mangled and mediated through the Government over there, and I hope, after recent events, that it does not last too much longer. The push that we had, which has unfortunately been marginalised in this bill, was to enhance the importance of ensuring that the supply of energy, and the pace at which it is used, is used at a level of greater efficiency, thus reducing the level of burden and impact on the sources from which we draw our energy. This is not going to change that. I repeat again that the level of interest and motivation within the bureaucracy of the various energy companies for achieving those kinds of outcomes is somewhere near zero.

Hon DAMIEN O’CONNOR (Labour) Link to this

I confess to not having been on the Finance and Expenditure Committee, but I think that anyone who picks up the Electricity Industry Bill, which is quite a substantive one, has to have an interest in it. The industry and electricity itself affect each and every New Zealander, whether they be in industry, a pensioner, or someone who just wants the comfort of nice underfloor heating in their bach by the sea. Whatever it is, it is really important to get this legislation right.

Clause 9 of Part 2 lists the industry participants. Back in the good old days, people understood that we had increases in electricity prices—there was no doubt about that—but there was security of supply, and we had an integrated system. There was, basically, ECNZ, and people had a local lines company that they dealt with. They knew what they paid, and some of them had to guarantee the price because they had had a line extended to their place. We have now moved into the new era of user-pays and the market, etc., and if people read through the list of industry participants they will start to get worried. For example, industry service providers are industry participants, and the layers of people who will be in this new electricity system—this wonderful new market that National is trying to create here—are listed in clause 9(2) as being: “(a) a market operation service provider: (b) a metering equipment provider: (ba) a metering equipment owner: (c) an ancillary service agent: (d) a person that operates an approved test house: (e) a load aggregator: (f) a trader in electricity:”. The list goes on and on. I guess all of those people will take a little slice, in terms of costs or profit, and ultimately the consumer will pay. The more complex we make a system—and this is exactly what is going on here—the more costly it will be.

There is, of course, an industry code, and clause 11(1) states that industry participants must register and comply with the code. We understand the need for a code for the building industry, given that the National Government’s attempts to deregulate it back in the early 1990s led to leaky homes in this country. It did not have an adequate code because it thought that the market would deliver, and the market failed to do so. I say to National members that this is another classic example of tinkering around with a failed model.

Industry participants have to register and they have to comply with the code, unless they are exempt from the obligation to register as set out in clause 12. Clause 12(1A) states: “The Authority may grant an individual exemption to an industry participant only if the Authority is satisfied that … (b) exempting the participant will reduce overall administration and compliance costs.” What a bizarre statement that is. I hope that the Minister in the chair can answer our concerns about that, because exempting anyone from any code would reduce compliance costs. If that is a qualification for a person to seek an exemption, then will everyone be exempt? Most people would probably say the authority would have its costs reduced, which is what, I think, the intent is here. But I thought we had a user-pays regime here: if we had a code and people were obliged to commit to it, then they would keep to the costs of doing that, and in that way make sure that the costs were kept low.

This is complex legislation. It is a band-aid to try to patch up a failed structure in electricity in this country, and most New Zealanders understand that. It does not matter where we go, and it does not matter whom we speak to, because most people understand that the electricity structure in this country needs major reform. We have acknowledged that. We have to make some major changes, and tinkering, as Minister Brownlee has done here, in my view will just lead to a more complex, more costly, and more ineffective way of governing electricity supply, generation, and efficiency. The one goal that we should all focus on is making better use of energy and electricity in this country. I do not think that this bill will help in that direction at all, and it would be great to hear an explanation of the reason for that.

AARON GILMORE (National) Link to this

I want to spend a little time talking about some of the interesting statements we have had across the Chamber. Mr Jones, who did not sit on the select committee when the Electricity Industry Bill was being considered, talked about the fear and loathing of this bill, and the worries about it. I think Mr Jones is a very good member of the Parliamentary Rugby Team, but that shows he knows nothing about electricity. Mr O’Connor, whom we have just heard from, was also not on the select committee and is also a wonderful member of the Parliamentary Rugby Team, but also showed that he did not know much about this bill. We heard from Mr Hipkins, who talked of worries about the environment, concerns about the new part, and issues of the authority not having a role to do with the environment. That shows that Mr Hipkins has not read the bill either, and it is beholden upon me to correct a few people on some of the misapprehensions that exist.

Clause 20 allows a power to come forward for the Minister to give requests to the authority to do anything that he or she may like, which might be environmentally related or related to pricing or another review. Another key aspect is the change in the role of the authority. I have had the misfortune of working in the energy sector both as an adviser and as a supplier to the industry in terms of cables, in particular. I worked for a major supplier to the energy industry that was one of the major players. One of the issues in the energy sector is the big confusion that we used to have with the commission. The commission grew from about 20 staff to huge numbers over a very short period of time, and the budget grew to about $50 million, as I understood it. There was $50 million for the bureaucracy. People were writing reports for the sake of writing reports to give to the person in the next department to justify quality or price. To me that was pretty much a waste of time and effort, and we saw that.

What we have now is a greater focus by an authority. We will have the Electricity Authority, which will have some aspects of environmental oversight. Indeed, there will also be more detail around the use of the Resource Management Act. But the promotion of energy, the issue that members on the other side of the Chamber seem to be worried about—those energy ads that we see on TV and such things—lo and behold will now be done by the Energy Efficiency and Conservation Authority, because that is what it was set up to do. We have taken that away from the Electricity Authority, and we have focused it more and given more control over what those roles will be. I think that is a better way to do things, because we do not have the left hand and the right hand arguing with each other; we have an entity set up to focus on what makes sense. One focuses on energy efficiency and one focuses on the governance and administration of the industry.

One of the factors that we are worried about, and we have talked about some of the roles and aspects under Part 2, is the issue of security of supply, and the fact that we have not had enough generation capacity built in the last few years. In the last 2 years there has been a bow wave of new generation build, but for many years we had a focus on not having new generation build approved, because it got stuck in those huge infrastructure bottlenecks commonly called the Resource Management Act and the Electricity Commission. What we have done is refocus the Electricity Authority to separate out what it is good at and what it is not good at. That will allow and help new generation plant to be built quickly.

It will lead to a lower price rise path over the next few years as the issues around promotion are being separated off, and instead of being one big, massive amalgam of bureaucracy, roles and tasks will be broken up into those entities that make sense. And that is an absolutely critical aspect.

Under Labour, prices went up by 72 percent.

CHRIS HIPKINS (Labour—Rimutaka) Link to this

There was far too much material in that speech from Aaron Gilmore on the Electricity Industry Bill; I do not think I will be able to get through all of it. I was interested to hear Aaron Gilmore describe himself as a major player in the electricity industry. I think the State-owned enterprises regard themselves as major players in the electricity industry; I am not sure that anybody would ever have regarded Mr Gilmore as a major player in the electricity industry. I know, of course, that in his little world he invented electricity, and we congratulate him on that! We are most grateful to the people of Christchurch for delivering him to this House so we can all benefit from the huge knowledge he brings!

I will talk about a few of the things that Aaron Gilmore spoke about before I talk about the Electricity Authority. Mr Gilmore talked about new generation getting stuck in the Resource Management Act. I wonder whether he could give us an example of an electricity generation project that has been stopped by the Resource Management Act.

Hon DAMIEN O’CONNOR (Labour) Link to this

My colleague Chris Hipkins raised some very important issues—

Hon DAVID PARKER (Labour) Link to this

In Part 2 we have clause 9, which states that we will have statements of Government policy that the authority must have regard to. What statements of Government policy have we had since the election? We had one arm of the Government apparatus—I forget whether it was Mr Whitehead at Treasury or Dr Bollard at the Reserve Bank—say that on the basis of the recession there was a need to have decreased profit expectations on the part of the big power companies. There were to be decreased profit expectations on the part of the major infrastructure companies, including—and I think they were named—the power companies. Of course, the Government owns the power companies, because they are State-owned enterprises. If the Government had wanted to achieve less pressure on power prices it could have explicitly said to those State-owned enterprises that it wanted lower dividends; that it did not want them to pay as much money into the Government coffers. Did it? No, it did not, and that shows how hollow its rhetoric is about its desire to control power prices, because that is all it needed to do. It could have said to Genesis, or Meridian, or Mighty River Power, or all of them, exactly what the Labour Government had already said to Transpower, which was that it did not want as much dividend. The Labour Government did do that in respect of Transpower, and the National Government could do that in respect of the major generators if it wants to take pressure off power prices. So all this talk about having a statement of Government policy that the authority must have regard to when undertaking its functions is not worth a tin of fish. We know that the Government had the lever. We know that the advisers to the Government at the highest level—and, from memory, I am pretty sure it was Dr Bollard at the Reserve Bank—said that the Government needed to take pressure off consumers by not ramping up prices, profits, and dividend flows to the Government.

The Government has control of two-thirds to three-quarters of the electricity market. The Government-owned State-owned enterprises—Genesis, Meridian, and Mighty River Power—produce two-thirds to three-quarters, depending on the year, of New Zealand’s electricity. They are dominant. If the Government had just given them the direction that it did not want as big a dividend, then electricity prices would not have gone up as much. I still call on the Minister in the chair, the Hon Phil Heatley, to take a call and explain how it is that this authority will control prices in a way that the existing commission does not, because that is what Gerry Brownlee says is its purpose. He says that the authority will be more effective at controlling price. Well, how? It is not apparent from the legislation. We know that the Government has ignored this opportunity to say that it does not want more dividends. In fact, it has said the opposite. The Minister for State Owned Enterprises, Simon Power, has said to these companies that the Government wants greater efficiency and higher dividends. In reality the only way we can get significantly higher dividends from the electricity State-owned enterprises is through price increases. They do not have very high variable costs in terms of their labour inputs, so a change to their salaries policy does not make much of a difference to their profitability. The only way they can increase their profitability and dividends is by increasing prices.

So I ask the Minister to explain how this new authority is going to have a different outcome in respect of market competition from what the Electricity Commission has had. If it is not going to have any difference, I cannot see how the Government can rely upon it to control prices any more than the existing commission can, and the Minister is already on record over many years as saying that the existing arrangements were not sufficiently controlling price increases. So if there was not sufficient price control through the market mechanisms that were operationalised under the Electricity Commission, and if we are moving to a new authority, what is it that is different that changes that status quo? The answer—because we will not hear a call from the Minister on this, because there is no answer—is that there is no change to the powers of the authority compared with those of the commission, in terms of market outcomes.

I ask the Minister in the chair to stand on his feet and explain how it is that different rules pertain to the authority and give them more powers than the Electricity Commission had to constrain prices. The answer, of course, is that there are no extra powers. The answer is that this legislation will not properly constrain price increases.

Hon NANAIA MAHUTA (Labour—Hauraki-Waikato) Link to this

The one Government member, Aaron Gilmore, who got to his feet and made a few comments needs to be challenged on a number of fronts. First of all, that member said that Labour increased the amount of bureaucracy in the system. Well, we had an Electricity Commission, and it will be replaced by an Electricity Authority, a Security and Reliability Council, and other advisory groups. If that is not more bureaucracy, I do not know what is. But that member clearly did not read the bill. In fact, what the Government has done is get rid of the Electricity Commission and replace it with an authority, a Security and Reliability Council, and other advisory groups—more bureaucracy. That member was Aaron Gilmore. Furthermore, he went on to say that the Resource Management Act stopped a number of projects. The Resource Management Act under Labour gave community groups the right to have a say on developments near them, and I certainly support that. But the Government of that member, Mr Aaron Gilmore, has, through its streamlining legislation, removed the opportunity for some community groups to have a say when they otherwise would have had that opportunity. That is what that member is actually supporting, so he needs to be challenged on those two issues, because I think he was erroneous in his presentation of those issues to the Committee.

But I have concerns about the authority as well. I have concerns in terms of its limited scope; I have said previously in the Chamber that the Supplementary Order Paper I am bringing to the Committee is to ensure that the scope of its consideration can be broadened to include environmental sustainability. I do not think that that is more bureaucracy. In fact, I think that that is more responsibility, in terms of the nature and role of what the agencies are there to do. I do not believe that the authority in its current scope is adequately equipped for looking at the whole landscape of electricity generation, or for ensuring that greater leadership is given on that front.

My colleague Chris Hipkins raised a number of very good points, especially about the smart meters initiative, which points to another amendment I have in my Supplementary Order Paper. I have had a presentation from my local lines company, WEL Energy, that talks about smart meters that not only talk to the customer but also enable better management of electricity use across the grid. In time, this is what the future will look like. I certainly endorse the report of the Parliamentary Commissioner for the Environment, and what she promoted in terms of smart meters. That is the technology that we need to look towards.

I believe that Chris Hipkins is absolutely correct in saying that the Minister should give direction on this front: we should have a smart grid, we should be promoting smart meters, and we should start now and not wait, albeit what we have now are dumb meters, and some lines companies, like WEL Energy, that I believe are taking an innovative and positive step forward in this area because they know what the future landscape will look like. I hope the amendment I have put forward will be considered in that light and will be supported, because we know that consumers want to be able to regulate the amount of electricity they use by having better information.

Some appliances are smart appliances, and we are learning from what is happening in Australia where they are already developing smart appliances. It will be only a matter of time until those appliances come here to New Zealand. So having a smart meter in the house, where consumers can look at the amount of power they are consuming and regulate themselves, I think is a good thing. I think it is really positive when that information is given back, and when the utilisation of energy across the grid can be better managed at another level. It is real-time information that is critical in order to make this a great success.

A number of other matters have been raised in the Committee that I think the Minister in the chair, the Hon Phil Heatley, needs to take a call on. He has stood only once, to respond to some very serious questions that have been raised by members of the Labour team; they deserve to be answered but, sadly, they have not been.

Hon SHANE JONES (Labour) Link to this

These speeches are focused on Part 2 of the Electricity Industry Bill, unlike the earlier contribution, which was both unwise and irrelevant, from that member residing in—

AARON GILMORE (National) Link to this

I think it is not time to talk about blondes and Kill Bill or anything like that, particularly coming from that member who has just resumed his seat, Shane Jones, but to answer some of the questions that have been raised. We are talking about Part 2 of the Electricity Industry Bill. A review was set up and it found that there were problems with the electricity governance arrangements. We found that the dual regulation of Transpower was not working. We found that there was a lack of independence, that Ministers were meddling in governance arrangements in the electricity sector, and that there was very slow progress on rule-making. So what have we got? Part 2 is about replacing the Electricity Commission with an independent authority as an independent Crown entity. It is about the establishment of a Security and Reliability Council. That is what Part 2 is all about.

I will touch on two particular things. Firstly, I will touch on the issue of smart meters, which we heard about from the Opposition, and the worrying fear that this bill should do more with smart meters. Well, I tell members that in Christchurch where I live there are 140,000 smart meters in homes as we speak, with the ability to do all the swinging, singing things that those members want them to do in the future when the technology is ready, which I think is appropriate. We have had this debate in the House before and we decided that the best thing to do was set up the governance arrangements to allow that to occur in the future, not now. The technology is not yet ready. It is an idea whose time has not yet come.

The other good things in Part 2 are some of the changes and governance arrangements on lines companies, particularly the standardisation of tariffs and the ability for less bureaucracy and how that will work. I think that is a good thing. We heard from Nanaia Mahuta the issues about bureaucracy. I understand that at its last count the Electricity Commission had about 300 staff in relation to its management. I do not think that is a good use of taxpayers’ money in terms of the spend that was occurring. That was all funded by a levy on electricity users. So electricity users were paying more money in order to set up a bureaucracy to oversee the governance of the electricity industry, but, effectively, all it did was shuffle paper back and forth from the left hand to the right hand. We do not think that was a good idea and that is one of the reasons why Part 2 has been put into place: to tidy up the governance arrangements and make the sector work a bit smarter and more efficiently.

I want to also quickly touch on another aspect that the previous speaker spoke about, which is the issue of the appointments to the authority and the skills and expertise required. One of the issues we have is that the current governance arrangements are not independent. Effectively, the Electricity Commission is not an independent Crown entity. The new Electricity Authority will be an independent Crown entity—

Hon DAMIEN O’CONNOR (Labour) Link to this

If the previous speaker, Aaron Gilmore, insists on getting up and making a contribution on the Electricity Industry Bill, I wish he would keep it accurate. He made two assertions. One was that the Resource Management Act hindered and stopped development of electricity projects, but he could not name one example. He was wrong. He then got up and said that the previous Government’s Ministers were interfering in the electricity market, but he could not name one incident. In fact, there are many of us who wished we had interfered a hell of a lot more, because that is probably what it needed. He went on about bureaucracy, reducing compliance costs, blah-blah-blah. I tell that member to look at what is in this bill. It sets up an authority, then a code, then it says that companies can be exempt from the code if they can prove that it will cost the authority less to implement, which pretty much means anyone.

Part 2, which we are discussing here, sets up a rulings panel. What does the rulings panel do? This is from the Government that has made so much noise and such a song and dance about reducing compliance and regulation, yet it will set up an authority and a rulings panel. What does the rulings panel do? It will “assist in the enforcement of the Code by—(i) hearing and determining complaints about breaches and possible breaches of the code;”. Let us ask why we should have this. Firstly, a company can be exempt from the code. If a company is exempt from the code, is it subject to the rulings panel? Does it have access to the rulings panel to take a complaint? There is no answer. The Government does not know.

Then there is the issue of whether the Commerce Commission or the rulings panel has priority in terms of a ruling over commercial negotiations or failure in commercial negotiations. Will the Securities Commission have a part to play in this or will the rulings panel override all of that? Mr Gilmore does not know and he cannot explain that, because the Government does not know, either. It is setting up a bureaucracy, a level of compliance, and a nightmare that will just further exacerbate the failings of the market structure that National set up in the late 1990s. This is just piling bad practice after bad practice—that is, the underlying belief that the market will deliver, but we need all of these other institutions and structures, such as the authority, for a start. Never mind that National thought the commission was unnecessary; it now needs an authority, then it needs a rulings panel. I ask Mr Gilmore whether, if he gets up and explains what the rulings panel will do, he can be more accurate than his assertion that previous Labour Ministers were interfering in the market or that the Resource Management Act was stopping or hindering the development of energy projects.

The facts are that there were some energy projects that were subject to the Minister of Conservation’s approval, and that is the way it should be. I know the National Government has indicated that it wants to take the Environmental Protection Agency’s projects of national significance and just run them through, which puts at risk a whole lot of rivers in this country. Maybe that member should go to the Wild Rivers presentation at Parliament tomorrow night. We are in favour of sustainable hydro generation, but if that National Government, as indicated, will railroad straight through all the processes for any big projects, then we may see the demise of many, many wild rivers in this country. That is not what the majority of New Zealanders want. We want good, sustainable hydro generation, geothermal, wind power—renewable sources of energy.

I come back to the bill. Having set up and got some generation, we now have a belief that many generators, many players in the market, will deliver the most efficient and effective electricity for consumers, be they big or small. I say that this legislation is basically flawed. That is why we do not support it. That is why we will continue to object and point out its failings, and point out the inaccuracies when those members get up and speak on this bill.

H V ROSS ROBERTSON (Labour—Manukau East) Link to this

Tēnā koe, Mr Chairman. I am thankful for the opportunity to address the Electricity Industry Bill. First of all, I would like to acknowledge the members of the Finance and Expenditure Committee for the work they did in bringing this legislation back to the House, and those select committee personnel who also did such a sterling job. Scrapping the Electricity Commission is a move by the Government to improve efficiency. That is a laudable and commendable thing to do, but I have to say that I have seen it all before in the pursuit of productivity and best practice. It happens about every 20 years. The synopsis basically is that after a certain amount of time, the officials in charge—especially if everything is based in Wellington—say: “Let’s put things out into the community, where we get more direct contact and we can actually improve the efficiency of the resource we have back in head office.” Then about 20 years later they say: “Oh, things have got out of control. We have to pull it all back to Wellington so we know what’s going on.” It goes on and on.

The commentary to this bill states: “The Electricity Industry Bill seeks to reform various areas of the electricity sector, and is intended to increase competition in the electricity market and ensure security of supply.” There is nothing wrong with that; it is commendable. It goes on: “The bill would modify governance arrangements in the industry, provide for specific regulatory changes, and alter the overall structure of the electricity sector. Specifically, the bill would disestablish the Electricity Commission and replace it with an Electricity Authority,”. That comes back to the whole issue of the fact that it is about productivity and the pursuit of excellence in all we do. That is important, but this will not be the end. I guarantee members that in a number of years, maybe another 10 or 15, we will get changes again, because that is what happens.

I want to put a number of questions to the Minister in the chair, the Hon Phil Heatley. I ask the Minister what analysis has been done on the costs or benefits of the proposed relocation of roles amongst the authority, the Commerce Commission, Transpower, the Security and Reliability Council, the Ministry of Economic Development, and the Minister. What analysis? I tell the Minister in the chair to get up on his hind legs and take a call, instead of just sitting there and ignoring the Opposition. That is what the Minister is doing. He is refusing to acknowledge the concerns of the Opposition on this side of the Chamber, who have genuine concerns and want to know why the Electricity Commission is being done the way it is. What analysis? If the Government is going to scrap the Electricity Commission and replace it with two new quangos, that in itself can be seen as being inefficient. I ask the Minister to justify that to the Committee, to the country, and to the Opposition, who want to know. What research has the Minister carried out, what cost-benefit analysis has been done, and what benefits are there to the consumer? Surely, we want to see that we govern in the best interests of our consumers, our voters, because after all, as members of Parliament, we are supposed to be here to serve the public. I want to know whether the Minister in the chair will take a call and answer any of the questions that I have asked. I am asking those questions on behalf of my voters, my people, and I would appreciate the Minister taking a call, because they are important issues for members on this side of the Chamber—very important issues.

I will just finish with this, because I think it is important that we read it in. We on this side of the Chamber believe that the Electricity Industry Bill fails to address the major issues facing the electricity sector. It will not deliver even on the priorities that the Government has set out for itself. In fact, it is likely to exacerbate the problems we have, putting pressures on supply and electricity affordability. As Opposition members looking to become a future Labour Government, we are saying that we will repeal this legislation and replace it with a legislative framework that ensures New Zealanders have a secure supply that, one, is affordable; two, is price-predictable; and, three, can be produced and used sustainably. Those are the concerns we have, and I would appreciate the Minister taking a call and answering those questions on behalf of the people whom I represent in Manukau, South Auckland.

PESETA SAM LOTU-IIGA (National—Maungakiekie) Link to this

I have listened this afternoon. I have listened to some pretty sour debate and I have listened to some pretty poor arguments. The Electricity Industry Bill is about reforming the electricity industry. I will just give the Opposition a little bit of history about what we are doing here and what this bill is about. This bill is in response to a review that was conducted last year. The review was done by a number of experts in the industry. The Electricity Technical Advisory Group was chaired by Brent Layton, and there were a number of other industry experts, like Professor Evans, Miriam Dean, Toby Stevenson, and David Russell.

We have heard a lot of rhetoric from across the Chamber. We have heard from Mr Hipkins that National said on the campaign trail that it would lower prices. That is factually incorrect. When I was campaigning in Maungakiekie, I said to people that we would limit price increases, which were prevalent under the previous Labour Government. As has already been stated by my colleague Aaron Gilmore, the cost of electricity went up by 72 percent over 9 years while inflation went up by 24 percent. What does that mean? It meant that it was three times the rate of inflation.

CHRIS HIPKINS (Labour—Rimutaka) Link to this

I am very happy to take a call on Part 3, which we have just begun to debate, following a very lively and informative debate on the first two parts. Part 3 is all about the lines companies. I think this part highlights the higgledy-piggledy mess that the National Government made of the electricity system, back in the late 1990s, when it tried to create an unofficial market in a situation where effectively there is a monopoly. Let us go through the history books. Before the electricity industry bill of about 1997, which I believe had the same name as the bill before the Committee, there were the local energy boards, which were responsible for distributing electricity to consumers, and the Electricity Corporation of New Zealand generated the electricity that was supplied.

Max Bradford decided that effectively there needed to be three main components to the market: the retailers, which would sell the electricity to the consumer; the lines companies, which would supply the electricity to the consumer; and the generators, which would create the electricity in the first place. There also needed to be competition in those markets. Obviously, in the case of lines companies, it is very difficult to create a market in that area, because they are monopolies. We will never have two sets of electricity lines running past every house and every business in the country. In fact, we would not even want to have two. It would not make any commercial sense to have a competing electricity grid. In a country like New Zealand, we are only ever going to have one electricity grid. In fact, I am not aware of anywhere else in the world—someone may be able to correct me—where there is more than one electricity grid. We need to be very clear about the fact that this is a monopoly situation. The lines companies are monopolies, and the transmission grid will be a monopoly, run by Transpower in the case of the New Zealand transmission grid.

If we are to say that we will have competition in the retail market and competition in the generating market, there needs to be some separation between those two markets and the natural monopoly that is the lines company. So Max Bradford said that the energy boards had to decide whether they would be lines companies or retailers. If they were to be retailers, then they needed to divest themselves of their lines businesses, and vice versa. We therefore ended up with separate lines companies, separate retailers, and separate generators. Of course that did not result in what Max Bradford promised everybody. He promised them that it would lead to lower power prices. In fact, we all know that over the last 12 years power prices have continued to rise by a substantial amount.

We are now faced with deciding how to deal with this situation, and what improvements can be made after 12 years of the operation of the market. Labour supports moves to get increased retail competition. If that helps to lower prices, that has to be good for consumers—the ones at home who will be paying their power bills. They have seen their power bills rising, and will be asking: “How can we lower our power bills? How can we get a bit more money back in our own pockets, not give it over to the power companies?”. Increased competition in the retail market may well help with that. However, I am not convinced that allowing lines companies back into the retail market will deal with that problem, because of their monopoly status. Some of the evidence presented to the select committee was that if a lines company is allowed to enter the retail market, far from increasing the number of players in the retail market in that area, it could distract other retail competitors from entering that market because of the way the lines company could have a monopoly in that area in supplying both the product, if you like, and the delivery mechanism. I am not convinced that this will make a difference. I am not convinced this will lower the price of power.

Hon DAVID PARKER (Labour) Link to this

The history of Part 3, as Chris Hipkins has already touched upon, is that after the Max Bradford reforms we went through a period when lines companies were left unregulated. A terrible mistake was made by the then Government, which assumed that if there was a monopoly there could also be competition that would somehow constrain price increases, and that companies would act appropriately. History, sadly, now shows that that was wrong. The lines companies did increase their prices but they did not invest in their infrastructure. This was not true of all lines companies around the country, but it was true in respect of some of the lines companies. They increased their prices to consumers, but rather than spending a fair proportion of the money they collected on investment in their lines, they distributed it to their owners, which were sometimes councils.

As a consequence, consumers have ended up paying twice. We were left with rundown lines companies, and the Commerce Commission, which was subsequently appointed as a regulator of the lines businesses, came in and regulated their returns. But the commission found that with some of those companies, the cupboard was bare. Although those companies had collected revenue over the years that should have been spent on their lines, they had not spent it on the lines, and consumers were effectively forced by what had happened to pay a second time, and to pay extra revenue to the lines companies. That second time, under regulation from the Commerce Commission, payment was required to be spent on the maintenance, replacement, and extension of the companies’ lines capacity. When I was Minister of Energy, that state of affairs was explained to me by officials and, indeed, by members of the Commerce Commission, who acknowledged that that had happened in respect of some lines companies.

There is no doubt that that was a mistake, in my view, and that Parliament under the previous Labour Government was right to introduce regulation of returns for lines companies, because they are absolute monopolies. We have only one set of lines, and the decision to allow that industry to be deregulated was always misguided. The risk in respect of a monopoly enterprise like a lines company, if we allow it to enter into other parts of the electricity market, is that it will cross-subsidise parts of its business using its monopoly rights as a lines operator. The tension that regulation of other activities by lines companies attempts to control concerns the risk that the company will use its lines revenues to cross-subsidise either its retail margins, if it is in retailing, or its generation businesses, if it moves into generation.

Those risks are different, depending on the ownership structure of the trust, and I would like to hear the Minister in the chair, the Hon David Carter, talk about what he sees as the difference between council-owned companies and cooperatives, which are effectively owned by the people who buy electricity from or through them. Those lines companies are owned by local communities. If a monopoly rent is being extracted, there might be some misallocation between users, but in a general sense the money is going back to the community if there is any excess in prices. I am less worried about those ones. But some of the companies are not owned in a cooperative sense like that; they are owned by councils. Councils use them as a source of revenue, and they try to maximise that in a way that defrays rates. At one level we can see why they would want to do that, but we can also see how that could act to the detriment of electricity consumers, who have a different interest: they want to pay a fair amount only for their electricity.

One of the concerns that I have about that is the change in the amount of electricity that will now be able to be generated by a local lines company before it has to have ownership separation of its generation business from its lines business. In the original bill that went to the select committee, the limit was proposed to be 100 megawatts, but the bill has come back with the recommendation that a lines company can have up to 250 megawatts of generation, directly connected to the national grid, before the company has to have ownership separation. That is a lot of juice; that is more than 1 year’s increase in demand for New Zealand’s electricity. We are talking about a substantial amount of electricity, so I ask the Minister to take a call and tell us whether the Government is convinced that it will be protecting competition in the market.

I think we could argue about the answer to that question. On the one hand, it would be nice to have a few more people competing in investing in generation; that makes some sense. It is going back to the old model we had before Max Bradford, where we had local council-owned companies that generated, retailed, and ran the local lines company. On the other hand, we are still maintaining the fiction that this bill will result in an effective market for the sale of electricity, at wholesale and retail levels, that will effectively constrain price. I remain unconvinced of that.

I would be interested to hear whether the Minister can tell us from the chair whether any modelling has been done about whether this extra generation capacity, which will come potentially from lines companies, will have some impact on the differential between residential, commercial, and industrial tariffs. The tariff that is paid by residential users in New Zealand has grown. The gap between that tariff and the tariffs paid by industrial users has grown very large over the last decade, and I for one find it hard to explain. I have concerns that it is a pointer to there being insufficient competition in the market, which leads to inappropriately high tariffs being paid by residential consumers.

I would also like to hear any information the Minister can give us about whether there are plans by local companies—that is, by the likes of the Alexandra example I gave earlier. I know that Pioneer Generation is situated there. Pioneer Generation is, I think, owned by a community trust, and it owns some generating assets there, yet that does not seem to have had any effect on retail tariffs for those people in Alexandra, who not only have the Clyde Dam, which I spoke about, and the Roxburgh Dam on their doorstep but who also have smaller schemes in and around the Central Otago area, run by Pioneer Generation. Despite all of those generation assets just being on the doorstep, those people are paying a higher tariff than people in most other parts of the country. So I would like to hear from the Minister what the impact of the increasing generation by that local lines company will be on tariffs for those people, and whether there has been any research or estimates done about the effect that will have on price.

My suspicion is that it will not have much effect. Actually, what would have a greater effect would be for the Government, through its State-owned enterprises, to say that it had a lower expectation about the rate of return on those assets. That would accord with what the Governor of the Reserve Bank was calling for about a year or a year and a half ago, when he said that the expectations of infrastructure companies about profitability were excessively high. That feeds into my concern that there is insufficient competition in that particular market, and that this tinkering with the market will not make a material difference to that state of affairs. As a consequence, the price paid for power, especially by residential and small commercial customers, will remain higher than is justified, which is to their detriment.

I ask the Minister in the chair to take a call and tell us what estimates have been made about the extra generation that will come from these lines companies. I also ask what reports the Minister of Energy and Resources has received about the effect that generation will have on prices at both wholesale and retail level for residential consumers and small commercial consumers.

Hon DAMIEN O’CONNOR (Labour) Link to this

I rise to speak because I know that the Minister in the chair, the Hon David Carter, does not have a clue about this, and will not get up and answer the queries put by the previous speaker, the Hon David Parker. None the less, I will do my very best to offer an opinion.

Part 3 is the political part. In the late 1990s, when separation was forced upon the lines companies, a whole lot of staunch National Party supporters were deeply offended that although these good people had worked for their communities, protected, built, and nurtured these lines companies—some companies taking on board generation when necessary—“Mad Max” and his mates in the National Government in the 1990s came along and said to those companies: “You’ve got to get out of that. You’ve got to separate, because the market is going to deliver to you and you’re not allowed to be in both areas of the market.” And it was a disaster. Those people were deeply offended. Some of them voted for Labour and put us into power in 1999. I know they still feel deeply offended, and Labour moved to address some of their concerns. I acknowledge that this bill opens up the opportunity for more of those companies to have more substantive generation and some vertical integration. I think the commentary on the bill states that it not be too much, so as to allow monopolistic behaviour, on the basis that the market still has to operate and deliver all these wonderful benefits to everyone.

That aside, the bill allows sensible realignment in areas and particularly in some rural areas. I know that the West Coast in particular had Westpower, a wonderful integrated company. It was forced to sell out. I think that something like $40 million was realised by the community. The trust at the time asked what it should do with the money. It was a real dilemma for the people who had built up those assets to provide secure electricity to the community. There was very good infrastructure, and the company upgraded the lines system. Any surplus that was generated went back into the infrastructure. It was a very smart model. None the less, “Mad Max”, the Hon David Carter, and his cronies forced separation. The company then had to divest its generation capacity. I know that on the West Coast they got about $40 million. Then the trustees—and I say they were wrong—thought: “We don’t have a mandate to continue to manage this for the community. We’re a lines company, so we must distribute this to each and every consumer.”, and it did.

Some retailers did quite well out of that distribution. Some people got $1,500 or $2,000—a little bonus. The money went “poof”. It was spent. Then, lo and behold, within a period of 2 years, and when Labour was in Government, I had that same company knocking on the door, saying: “We need some capital to upgrade the line into the West Coast because there is going to be growth in industry”, and indeed there has been. It has been an amazing success story. The point is that the stupid ideology that drove the National Government in the 1990s forced that trust to divest the generation capacity and forced it, the company thought, to divest the capital. So that company is now building back up. I know it will make use of this new provision, because it already has some generation initiatives under way, and that is great. The company will be able to align the generation and the distribution network. That is sensible, but it has taken the National Government a while to learn. Its members are slow, slow learners.

Unfortunately, other provisions in the Act that still rely on the market to deliver a great outcome will be flawed and will fail. But there will be some areas where I am sure that as those lines companies are still owned by the community, they will for the most part manage that for the benefit of their community. Often in Wellington, I am afraid to say, the officials in Treasury and in the National Party do not understand that there is a huge amount of goodwill in many rural parts of the country. People do not work just for self-interest; they work for the good of their community. The people who did this through the 1970s, 1980s, and 1990s, to build up those strong and robust lines companies distributing secure supply, were deeply offended when the nerds in Treasury and the nerds run by the National Party said: “You’re going to divest this and throw yourselves out into the market.” Well, I guess this is some token acknowledgment of the mistakes made then. We are allowing—and indeed the select committee raised the threshold—some vertical integration to occur, and that is good. But, as I said, it is a sad, sad state that it has taken too long.

I read through Part 3 and I raised in the Committee debate on Part 2 the issue of the bureaucracy that we are setting up. This is the Government that decries the previous administration and all the bureaucracy and compliance costs. Under the provisions of Part 3, the High Court is now playing a part in the system. We had the authority set up, then we have the rulings panel to deal with disputes for those who may or may not be using the code, depending on whether they have been given an exemption, and now we have in clause 85: “If the High Court is satisfied, on the application of the Authority or any other person, that a person has breached a provision of this Part, the court may give directions ordering a person in breach to renegotiate any agreement …”. Now we have the High Court playing in the arena.

Then in clause 87 we see a reference to the Commerce Act 1986, which is fair enough; it pervades most of our legislation. So we have the Electricity Authority, the rulings panel, the High Court, and the Commerce Commission. What a dog’s breakfast, from a Government that says it will simplify everything and will get rid of compliance. I ask who will pay for all of this. Who? It will be the consumer. Will it be the big companies? No, no; they will always be able to negotiate a better deal. What about the small consumer? Who has been looking after their interests? Well, the National Government never looks after the interests of the small people. Look at the tax cuts. It is $1,000 a week if one is earning $1 million a year. If one is earning $30,000 a year, it is about $3 a week. That is what the National Government calls fair.

Well, unfortunately that is the philosophy driving this legislation also. We do not trust the complexity of this legislation to deliver fair deals and fair electricity prices to New Zealanders, and certainly not to people on low incomes. That is why we do not support the legislation. That is why we will continue to point that out. I am sure that not too far down the track we will be able to say “We told you so.” The same idiots who said that deregulation and market forces would reduce the cost of electricity in late 1990s have come back to us saying that they did not really mean it. It was said at that time as justification. What we are seeing here is the Minister and National members saying that this bill will improve the electricity industry and deliver better outcomes.

I do not believe that for a moment. I feel sorry for the officials, as they have to work within the constraints of flawed ideology run by the National Government in all of these areas. I ask the Minister in the chair—a slightly smarter and higher-profile Minister, Dr Jonathan Coleman, is in the chair now—whether he can explain how the Electricity Authority interfaces with the rulings panel, and how the High Court can intervene in the issues of separation and the thresholds around how much electricity is generated. Of course, that will change from year to year, I guess; I am not sure. I am not quite clear on whether the 250 megawatts is maximum capacity, or is that average capacity? Maybe that is one of the questions the Minister can answer. Of course, the Commerce Act 1986 is overriding all of this. That Act states that we have to make sure there is fair competition. Well, it has not ensured that there is fair competition. We have had rorting, we have had price gouging, and it has been identified—

CLARE CURRAN (Labour—Dunedin South) Link to this

I am addressing Part 3 of the Electricity Industry Bill, which allows lines companies to retail in their local areas. I will just reference what my colleague Damien O’Connor said about the small consumer, and fair deals and electricity prices. I will also reference what my colleague David Parker said about insufficient competition in the market, monopolistic behaviours, and the effect on consumers.

Essentially, the way this industry will operate under this bill means that the residential cost of electricity will remain too high. Ultimately, this issue is one of affordability, and that is affordability in a whole range of different things. I will tell members what it is like for the people in my constituency at the moment with regard to affordability, or the lack of affordability. When we think about what the potential is for where this industry could be going and for the other things that it could be doing, which is also about affordability, we see that there is a lot of potential.

Today I will share with the Committee that I heard from a major social service agency in Dunedin, which talked to me about what it is really like for families in Dunedin right now with regard to the affordability, or the lack of affordability, of electricity prices. The social service agency administers the community electricity fund that is run through the Dunedin City Council on behalf of all the local organisations. It told me that this winter it has been inundated with inquiries and queries, and its staff have been working all day, most days, on requests from the public relating to power. It says that it is only one agency and, although it sees a lot of applications, other agencies are having their own appointments with citizens throughout the winter. Frequently they say that it is not uncommon for people to be coming in with power bills of more than $1,000 for a month. That may sound extraordinary to the Committee, but it is not; the median power price for families in Dunedin, and in other places in this country that are cold in winter, is about $400 to $500 a month. My colleagues have talked about the lack of ability of people to pay these bills and the indifference of the Government towards measures to address the problem.

It is interesting that during the election campaign, we had National members saying that we must lower the price of electricity, but now that a bill has come into the House, it will not actually address that issue at all. Many of these people are families. A number of other people are living on their own and their bills are not as high as those for families, but their bills are up around the $300-a-month mark and they are on fixed incomes. The organisation that I spoke to today gives grants of up to $200 through the community electricity fund, but it certainly cannot address many of these people’s needs.

I will quickly talk about the future of this industry and address the issue in Part 3, which relates to allowing lines companies to retail in their local areas. Although Labour supports having increased retail competition, we believe that allowing lines companies back into the retail sector will ignore the problems that arise out of their geographic monopoly status, and it may actually reduce competition rather than increase it. One of the options that I know my colleagues have talked about is whether electricity lines companies could be the bearers of other services to households, such as broadband, which is probably a more efficient use of their networks. It could be about investigating and eliminating barriers to entry into the retail sector, which would be a better way of introducing competition.

When we think about the future of this industry, which is a network industry, we know that our networks in New Zealand are critical. The newest network that we are looking at introducing is broadband. There is support pretty much across Parliament around the importance of our new broadband network, if it ever actually appears, and there is a lot of talk about how that will be delivered. Several ways have been discussed by the industry about how to do that. One of them is through our national telecommunications company, Telecom, which is a competitive monopoly, and the other way involves asking whether the electricity lines company should have a role. I will briefly address that matter, because there are some signs that the electricity lines companies have a significant role to play in this, and this could be about where their future lies in terms of how to deliver the newest network to the country. It would seem to be that instead of having fierce and, to some extent, contrived competition, which is raising the price of electricity for the ordinary citizen, we should look at how lines companies could have a better role in delivering broadband to the country.

Recently there has been an announcement by the Government that could potentially be positive relating to how the lines companies can deliver broadband to New Zealand. Three organisations that are lines companies are in discussion with the Government. One is in Northland, one is in the central North Island, and one is in Timaru. The major issue that the country, and certainly the telecommunications industry, is grappling with at the moment is whether we will be looking at electricity lines companies delivering broadband, or whether that will be done by a monopoly such as Telecom.

If we are really looking at the future of how New Zealand can move forward in this area, and not looking at having higher electricity prices for the ordinary citizens of New Zealand and increasing the pressure that is being put on families and our older citizens, then this is the area where the Government should be. It would be good to have some response from the Minister today on that issue, and on whether the Government believes that this is a viable place for it to be moving towards.

Hon NANAIA MAHUTA (Labour—Hauraki-Waikato) Link to this

I rise to speak to Part 3, subparts 1 and 2, which allow lines companies to retail in their local areas. If this part was considered in and of itself I can see that a number of elements would be very attractive to lines companies. In fact, I expect that many lines companies will welcome the opportunity to retail in their particular area.

I will comment briefly on what that landscape will look like. The primary motivation, obviously, for lines companies who get into this will be to deliver back a benefit to their shareholders, many of whom are electricity users. Some companies will see quite a strong motivation to get involved and ensure that the benefits not only go back to their shareholders but strengthen the infrastructure within their local areas.

My colleague Damien O’Connor spoke earlier and made the point that this part could well be a benefit to, and opportunity for, rural communities. I expect that it could be, but it will not be through increased competition in some of those areas; it will be because there is a strengthening of the role of lines companies. In Hamilton, for example, I am sure the same could be said: energy networks will relish the opportunity to retail in that area. More significant, I can see that they will invest back into infrastructure. Lines companies are critical to ensuring that local infrastructure is invested in, and is strengthened to be able to deliver electricity to households. In fact, again, they could actually be the critical part in ensuring that hospitals have improved infrastructure in their areas as well.

If this part was considered in and of itself, I can see that a lot of benefits and opportunities could be delivered to the consumers who are also shareholders of particular lines companies. However—and this goes to the substantial debate—nothing in the Electricity Industry Bill deals with the issue of fairness to consumers. We have raised that issue consistently through the debate and we believe that the Government should recognise it. Overall there is a huge differential between domestic and industrial tariffs, and there is a huge differential in terms of the increases on domestic households. We know that there is pressure already on their household prices, and the bill overall does not address that. We would like the Minister in the chair, the Hon Dr Jonathan Coleman, to simply respond in terms of showing how the bill will address these types of differentials, ensuring fairness exists in the market, and explaining in some detail how competition will deliver back a benefit to the domestic consumer. That is the nub of what this bill will be tested on—whether it will deliver those types of benefits.

As I said, overall there can be a lot to gain from increased retail competition, but we should not see it as the answer, because it exists within a wider matrix of changes that the Government is introducing. Those changes do not address the issue of environmental sustainability of electricity generation, do not address the issue of fairness to consumers in terms of pricing, and do not give any sense about whether the Government will show leadership in tackling the huge differentials between domestic users and industrial users. We think that that will become the litmus test for reform in the electricity sector.

More important going forward, the Government has not signalled, either in the draft energy strategy or the Energy Efficiency and Conservation Strategy, what it will do to continue to show leadership in investing in renewables. We put that major challenge to the Government to ensure we will have a future where we rely more on renewable energy rather than on thermal generation. Also, in the area of security of supply I think it is notable in this part of the debate that the Government has increased the effort in terms of investing in the upgrade of the grid through Transpower. I definitely applaud that investment; I think it is long overdue.

I come back to Part 3. As I said, Part 3 cannot be considered in isolation from the whole bill. Overall, the bill will be tested on the areas I described. It will afford opportunities to particular lines companies; I do not doubt that. I think those lines companies can see the advantages in playing a strengthened role in the retail sector, which will deliver some gains to their shareholders, who can also be consumers. It will also reinvest back into the lines network and infrastructure, but lines companies have been doing that.

My colleague Clare Curran raises a very important point about ensuring that lines companies are part of the broader roll-out of broadband, but that brings its own difficulties. We do not want to get to a situation where, when we are looking for an integrated, seamless roll-out of broadband, we have no strategic overview of how it will work in practical terms across different lines companies, especially when we are talking about the roll-out of rural broadband. There are resource management issues that need to be addressed, I suppose, and there will also be some more technical aspects of that particular task to consider.

Notwithstanding the issues I have raised, a number of challenges and pertinent questions have been put to the Minister by members of the Labour team. Although the Minister in the chair may not be able to respond, I hope the questions are being noted so that when the responsible Minster sees fit to respond to those questions, he is able to do so. We believe that at the end of the day the litmus test for this bill, in terms of the structural reforms and the governance solutions it is proposing, will be whether it delivers cost benefits to domestic consumers, lessens the differentials between domestic consumers and industrial consumers, and ensures predictability of pricing over the long term.

I hope, and I sincerely believe, that the Government will think about showing leadership in terms of the sustainability of electricity generation in our country, because that leadership is sadly missing. Fairness is missing in this bill, and it needs to be addressed if the Government is serious about the issues that matter to New Zealanders. What hurts people in the pocket will be the real test. Electricity prices are far too high—far too high—and it cannot continue.

STUART NASH (Labour) Link to this

I stand in the Committee stage to talk about allowing lines companies to retail in their local areas. There are only two points I would like to make with regard to that, so this will not be a long call. The first point is about competition and the second is about monopolistic powers. I am all for competition, especially in an area that has the potential to drive down prices in an absolutely essential service in this time of recession, when families are really, really suffering. On 1 October power prices will increase by at least 2.5 percent, in line with GST. There are families out there, as my colleague Ms Curran highlighted before, who are facing $1,000-a-month power bills.

CHRIS HIPKINS (Labour—Rimutaka) Link to this

I am very happy to take a call on Part 4, which essentially deals with security of supply. I will run through some of the provisions contained in this part, but, first of all, I want to pick up on some of the comments the Minister of Energy and Resources made in his very brief remarks when we began the Committee stage. The Minister talked about security of supply and the fact that we had several years of shortage during the tenure of the last Labour Government. Of course, I contend that that was all the previous National Government’s fault, because it created the mess in the first place when Max Bradford scrambled this particular egg. What is really interesting is that Gerry Brownlee used the prospect of further supply shortages as one of the justifications for some of the changes in this bill.

Let us go back to what Gerry Brownlee’s ministerial review said about the prospect of security of supply issues. The review stated that overall it is clear that sufficient investment has taken, and is taking, place in new generation. So there is no justification to say that there will be security of supply concerns because sufficient investment is not taking place. That is the first point, and I think it is really important that we do not buy into the rhetoric that there will be huge shortages because insufficient investment in new generation has taken place.

The ministerial review also found that it is in the market’s best interests—in the interests of retailers and generators—to talk up the prospect of shortages and to run savings campaigns in order to lower spot prices. It is in their financial best interests to create the impression amongst consumers that there will be a shortage, so that they can keep spot prices lower. In fact, that is also the position of some of the larger users. They wanted to see spot prices lowered, as well. That basically means that we create a perception of a shortage in order to move the burden of lowering spot prices on to domestic consumers. I do not think that is necessarily right. We have to keep that in mind when we talk about security of supply, because it is in the market’s best interests to create an impression that there will be security of supply.

This bill removes the reserve energy scheme put in place by the last Labour Government—the Whirinaki power plant. Let us think about that for a moment. As we have mentioned time and time again on both sides of the Chamber, the weather plays a huge part in the New Zealand electricity system. Hydro lakes and wind make up the bulk of our electricity supply. Therefore, it is prudent to have some reserve capacity that can be called on when the hydro lakes are low, when the wind is not blowing, and when the pressure really comes on to have some reserve supply. The incentives for the market to supply that reserve energy simply are not there. If people want to build a 400 megawatt power plant, they will want it to be operating the whole time. They will want to get the maximum dollar they can get out of their investment. They will not invest in a 400 megawatt power plant that will sit there and be used only occasionally. There is no incentive for the market to do that. The Labour Government recognised that need and invested in the Whirinaki reserve energy power plant. This Government is doing away with that. It is giving the power plant to Meridian Energy, and that creates some other issues. Meridian has built its entire branding and its entire strategy on being 100 percent renewable, but it is being made by this National Government to take a gas-fired power plant. With the stroke of a pen, suddenly Meridian’s clean, green 100 percent renewable brand is down the toilet, because the National Government is forcing it to take a gas-fired power plant. That measure also removes the reserve energy scheme altogether. If I was the chief executive of Meridian, and the Government had made me take this power plant, I would probably sell it. Why would Meridian want to keep a gas-fired power plant if it was going to fundamentally undermine everything that the company had set out to do in establishing itself as a 100 percent renewable electricity company? It is quite conceivable that the Whirinaki power plant will end up being sold if Meridian is forced to take it over, which is exactly what this bill does. It is something we need to consider very carefully. The ministerial review recommended doing away with the reserve energy scheme. We do not agree with that, so we do not agree with Part 4.

I want to talk about the compensation regime that this bill puts in place. The Government has said that if there are going to be shortages and conservation campaigns in future years, then electricity companies should have to pay consumers some compensation. The Government has fixed that compensation at the grand sum of $10 a week per account holder. If consumers are asked to reduce their electricity consumption, they will get $10 a week in compensation. Actually, the Finance and Expenditure Committee was presented with some quite compelling analysis that showed that in the context of the huge profits that electricity companies can make when there are shortages of supply, $10 a week per consumer is trifling. Being required to pay consumers that amount of compensation will not incentivise electricity companies to invest in conservation schemes. So I ask how we can make sure that electricity companies are investing in sufficient generation capacity to ensure that there will not be supply constraints in future years. Actually, this bill goes the opposite way, and this debate forces it to go the opposite way.

TrustPower said in its submission to the select committee: “The uncertainty created by the industry shake-up”—that is, Gerry Brownlee’s industry shake-up—“was likely to have a chilling effect on private electricity generators’ willingness to invest in new electricity plant, raising the prospect of shortages again within a decade.” So the Government says that it wants to have a market, but the market is constantly being rearranged all of the time. That removes security from the system and, therefore, disincentivises generation companies from putting in place the investment that we need in further electricity supply, and that is more likely to result in security of supply pressures.

I want to move to what Ari Sargent, the chief executive of Powershop, said in a blog before Gerry Brownlee made him take the blog down. Ari Sargent was talking about the Tekapō A and B asset swap, which is dealt with in Part 5 but has direct reference to Part 4, which talks about security of supply. Ari Sargent said: “This puts the security of supply at risk and will see a change in river operation that will increase wholesale prices and prices to consumers, particularly in the South Island,”. So that is from Powershop, and I place quite a lot of store in what it is saying. It is one of the most innovative electricity retailers in New Zealand, and I think that it has established a really exciting market model. It is saying that the changes in this bill will not actually increase the security of supply in New Zealand. Of course, it is not surprising that we are having this debate, because once again we are seeing more and more evidence of Gerry Brownlee pushing ahead with something that has no analysis to prove it will work. No analysis has been put forward of whether the requirement for generators and retailers to provide compensation during conservation campaigns will actually reduce the need for those conservation campaigns in the first place. No evidence has been put forward to suggest that that would be the case, and, in fact, some submitters argued quite strongly that it would not be the case. As I have said, it may be more cost-effective for generators and retailers to compensate consumers at that trifling sum of $10 a week than to face high spot prices.

It would be more worthwhile, if we are concerned about security of supply, to make sure that we are facilitating improvements in energy efficiency. The introduction of smart meters, as I have mentioned before, is one way that we could absolutely focus on energy efficiency. Potentially, if we get smart meters in every house, and if we get them operating effectively, it could result in a whole new, very different model for the way that the electricity market currently operates. It would potentially allow consumers and retailers—and the retail model would have to change—to buy their electricity at off-peak prices when the demand was lower, and spread their electricity usage, particularly if they had smart meters that would talk to appliances, for which the technology is potentially there. It could result in much better use of electricity.

Hon DAVID PARKER (Labour) Link to this

Part 5 is the most ridiculous part of this bill. It forces one electricity company, namely Meridian Energy Ltd, to give up some of its power stations on the Waitaki River and transfer them to Genesis Power Ltd. That means that we will have less efficient use of the resource.