Hon HARRY DUYNHOVEN (Associate Minister of Energy) Link to this
I move, That the Electricity Industry Reform Amendment Bill be now read a first time. I will be recommending that the bill be referred to the Commerce Committee for consideration.
The Electricity Industry Reform Act of 1998 required ownership separation between electricity lines companies and electricity supply companies in order to facilitate competition in the electricity industry. The Act was amended in 2001 and again in 2004 to encourage lines companies to invest in generation—in particular, in “new renewables”, provided they did so in separate companies and complied with arm’s-length rules. In practice, notwithstanding these amendments, there has been little investment in generation by lines businesses. Lines companies submitted that the amendments did not go far enough and that barriers remained to their investing in generation. The purpose of this amendment bill is to address the issues that discourage lines companies from investing in renewable generation while retaining key restrictions on cross involvement between a company’s lines and generation activities.
The bill achieves this through three main policy changes. The first policy change is intended to make it easier for owners of lines businesses to sell the output of the generation they were permitted to own under the 2001and 2004 amendments to the Act. The objective here is to encourage the owners of lines businesses to invest in permitted generation, especially generation from new renewable energy sources. This policy objective will be achieved by allowing lines companies to retail up to 100 percent of the nominal annual output capacity of their permitted generation. This is an improvement on the existing Act, where allowable sales are restricted to the actual output of the generating station. In situations where this generation has a variable output, such as on a wind farm, this places a significant restriction on the company’s ability to sell the electricity it generates. Lines companies will also be allowed to trade in financial hedges, without restriction, in order to manage their risks.
The amendment bill proposes a number of significant changes to corporate governance rules intended to lower the costs of corporate separation and compliance with arm’s-length rules. The threshold for compliance will be raised to 10 megawatts, an increase from the present limit of the higher of 2 megawatts or 5 percent of maximum demand. Currently, a lines company intending to operate in both lines and generation, or retail activities, needs separate boards and management structures. The proposed amendments will relax the separate board member requirement, thus allowing the same person to be a director of both the lines and the supply businesses, provided that there is at least one independent director, excluding executive directors. In addition, the same person will be able to be the manager of both companies, when the companies supply up to a threshold of 30 megawatts.
The second main change is to narrow the scope of ownership separation requirements to focus on geographical areas where there is potential for the exercise of market power and anti-competitive practices, namely where lines and supply are co-located. This will be achieved by allowing owners of lines businesses to be involved in generation and retailing without limit outside their lines area. In addition, requirements for corporate separation and compliance with arm’s-length rules outside the lines area will be repealed. Existing ownership separation rules will be retained where lines and supply are co-located. This is because co-owned, co-located lines and supply businesses have both the incentive and the ability to lessen competition in retailing and local generation. Ownership separation removes this incentive and ability.
The third main change is to amend the definition of renewables. Currently, the owner of a lines business may only invest, without quantity limitations, in “new renewables”, which are defined to exclude hydro and geothermal generation using traditional technologies. This new definition includes all renewables, to reflect the Government’s policy of encouraging the development of renewable energy.
The amendment bill is an important element in the New Zealand Energy Strategy. By facilitating lines company construction of renewable generation and the selling of the output, these proposals will contribute significantly towards our 90 percent renewable energy target. At the end of the debate I will move that the Electricity Industry Reform Amendment Bill 2007 be referred to the Commerce Committee for consideration.
GERRY BROWNLEE (National—Ilam) Link to this
The National Party will support the Electricity Industry Reform Amendment Bill being referred to the Commerce Committee. We do so making the observation that this bill and its intention joins a very long list of policies announced by the National Party, then flogged by the Labour Government.
Sue MoroneyPoor old Sue Moroney is the Labour junior whip. I mention her name because her opportunities to have it recorded in Hansard during her political career have been relatively few. We had a policy in 2005, going into the election, that did exactly this. If the member were to go through the record of the debate on the 2004 amendment legislation, she would see reported throughout it our comment that restricting lines companies in the way they were being restricted then would not result in the necessary pick-up.
The Hon Harry Duynhoven, who does not know much about this topic and who unfortunately is just a stand-in Minister of Energy tonight, did his best. He read from the officials’ notes and he did a beautiful job of reading them. It was almost seamless; one would not have known he was reading—
Hon Tony Ryall—that is right—other than the pauses sometimes being in the wrong place. He tried to explain what this is all about. It is pretty simple. Lines companies throughout the country obviously have an interest in electricity distribution. They also have very, very stringent limits on what they are able to invest in. They are companies that have particularly strong balance sheets, and the ability for those companies to invest in generation—particularly embedded generation, or distributed generation—is quite considerable. If they did invest in a wind farm that had 100 megawatts of capacity, they would never have that 100 megawatts available for sale, because we know that a wind farm works at only 43 percent or 45 percent efficiency if we are lucky. They would be constantly chasing their tails. This provision says that the lines companies can go out and retail their full 10,000 gigawatt hours, that they can supply that by buying in and out of the market, that they can hedge that cost by taking out hedge contracts, and that they can fully participate in the market, provided that they put the generation in place, and that is the key to it.
This country has a scarcity of electrical energy, but we should not. We should have an abundance of electrical energy, but, unfortunately, for the last 8 years the Labour Government has made conditions so tough that no one has invested to any great extent. It is very interesting that in the 9 years of the last National Government, nearly 1,600 megawatts of new electricity was put in place, but in the last 8 years the amount has been much less than 700 megawatts. A lot of that has been renewal, which we want, but its efficiency rating is so low that it causes a problem.
Surprisingly, this is not a bad attempt by the Government to put into legislation the National Party’s 2005 energy policy. For that reason, we are prepared to consider it at the Commerce Committee. We think that some of the arm’s length separations in here are a little bit of a joke. I guess they reflect how the factions work inside the Labour Party—
Yes. Everyone knows they are all one, but there are different heads of factions and different handshakes going on around the place at different times, and they all try to keep their little bit secret from each other. I do not think that is a good way to conduct business.
We will look at the provisions as the select committee considers them. All in all, I do think that if this law is enacted and the lines companies respond to the opportunities offered by the change in the law, it should have quite an effect in at least holding the price of electricity, if not seeing it fall.
DARIEN FENTON (Labour) Link to this
It is a pleasure to take a short call on the Electricity Industry Reform Amendment Bill. It was interesting to hear the previous speaker, Gerry Brownlee. He had some sort of paranoia about National’s policies being stolen by the Labour Party. Yeah, right! [ Interruption] That is right. It also reminded us of Max Bradford. That name is a blast from the past that I never thought I would have to worry about. The unlamented Max Bradford—oh my goodness! We have moved on from there, but I do not like to be reminded of these things.
Lesley SoperThat is true.
This bill is an important part of the Government’s plan for a sustainable future. Sustainability is something that we are all coming to grips with. Everybody is talking about it. Everybody knows that we have to deal with the issues facing our planet and the issues we have with climate change. Our Labour-led Government has set a goal of 90 percent renewable generation by 2025. It is a perfectly achievable goal. We have already introduced legislation for a New Zealand emissions trading scheme and a 10-year ban on baseload thermal generation, except where it is needed to ensure security of supply. This Government is committed to both renewable generation and security of supply in order to continue New Zealand’s drive for economic transformation. We are encouraging more renewable generation, improving energy efficiency, and maintaining security of supply.
The purpose of this bill is to deliver all of those things, and the amendment is to further encourage lines companies to invest in renewable generation. As the Minister has outlined, it does that through three major changes. First, it makes it easier for owners of lines businesses to sell the renewable generation they are permitted to own under the 2001 and 2004 amendments. Second, it allows owners of lines businesses to be involved in generation and retailing without restrictions outside their lines area. Third, it extends the definition of eligible renewables to include hydro and geothermal energy now covering all renewables.
This is a good bill. It is good that it has the support of the Opposition. I can assure the Opposition that we did not steal its policy. This is our idea.
Yes, Opposition members are desperate to claim ownership of things that we all know we have to deal with. I look forward to the debate at the Commerce Committee and to the bill being reported back to the House.
CHRIS AUCHINVOLE (National) Link to this
I rise in support of the Electricity Industry Reform Amendment Bill. I understand that it is in perfect line with National’s 2005 policy initiative. Indeed, we probably would have had it more quickly—
Mr Ryall could well be right; it could be a photocopy.
I fully concur with the points that have already been raised by my colleague Gerry Brownlee. In taking this call I will illustrate how useful this bill will be to the smaller lines companies, like those we have in the West Coast and Buller regions. The mission of Westpower down on the West Coast is to operate successful businesses that provide the following electricity-based services: distributing electricity, generating electricity, providing power systems, electrical contracting, asset management services, and electrical engineering consultancy services. Further north at Westport we have Buller Electricity Ltd, and its mission is to be “an innovative, customer-focused company providing excellent services and a high quality reticulation system.”
Those specifications are exactly what people would want. Both of those organisations exist for the community or are owned by the community, but the impact of legislative and regulatory changes on companies the size of Buller Electricity and the somewhat larger Westpower is considerable. On the one hand they strive to be a successful enterprise, and on the other hand they have been caught between the narrowing gap of escalating costs and prices restricted by regulation. The key to success for these smaller lines companies in this bill is that hydroelectricity generation is now classed as a renewable—something that was not certain previously.
This bill frees up small lines companies to get engaged in electricity generation, thereby improving their income and their security of supply, and limiting their dependence on imposed costs from other generators. Without this bill, if Westpower wishes to build a hydro scheme, it has to seek a special exemption from the Commerce Commission. Making an application for an exemption is not a cheap exercise, and the associated costs are restrictive. That does not stop the development from happening, but the arm’s length rules provisions in section 25 of the Act make it necessary—and expensive—to seek exemption.
The interpretation clause in the bill specifies that “ ‘renewable energy source’ means solar, wind, hydro, geothermal, biomass, tidal, wave, ocean current sources, or any other energy source that occurs naturally and the use of which will not permanently deplete New Zealand’s energy sources of that kind, because those sources are generally expected to be replenished by natural processes within 50 years or less of being used”. This lifts a whole load of restrictions that small lines companies previously worked under. It allows them to look at having hydro schemes for increased security of supply and a reduction of supply costs, and it reduces the cost of the 30 percent transmission loss that is reputed to occur when electricity is sent from Lake Coleridge across Mount Horrible to the West Coast.
We already have Westpower looking at a hydro scheme that will produce perhaps 6 megawatts in South Westland, which would be adequate for the development of hotels and dairying in that area. Without increased electricity, we will not get development there. The West Coast has 56 rivers and heaps of creeks, with limited reservoir capacity. The development of new systems will probably depend on the use of run-of-the-river systems, taking full advantage of the plentiful and frequent gifts of rain we enjoy down there. This bill provides for a 50 megawatt limit on generation by lines companies. This is not at all restrictive in the case of the West Coast, which has a capacity to use 42 megawatts at peak periods.
Another benefit this bill will bring is in allowing knowledge to be freed up and used to good advantage. There are presently large reservoirs of intellectual capacity relating to electrical generation within the lines companies. For instance, Westpower has a contracting subsidiary called ElectroNet, with over 120 qualified staff involved in asset management, information technology, and electrical and lines divisions. The company has an excellent record of having the resource and expertise to compete at the highest level in the electrical field. Adding generation capacity to lines companies creates an opportunity for career path development. It is particularly important at the present time, with the brain drain and skills drain to Australia, that we take every opportunity we can to attract people and hold them by usefully engaging their talents. This bill goes some way towards that.
Looking further north, I see that the bill allows Buller Electricity to continue to develop hydro opportunities. It has a chequered history of doing that. One reflects on Buller Electricity Ltd v Attorney-General over the Ngākawau scheme, which brought everything to a grinding halt. Without this bill, if small, community-owned lines companies such as Buller Electricity have fulfilled an intention to generate locally from hydro generation—and this is the catch 22—it would be compelled to sell it off, because ownership of hydro generation without hydro being classed as renewable prevented any benefits from coming to Buller Electricity. In other words, it was stuck in a poverty trap. This bill will provide potential income streams, which will benefit Buller consumers. None the less, the company is still in the situation of having no foreseeable load growth, capped revenue, and ever-increasing costs. At least now there can be revenue from its own generation plus sales outside the region, the benefits of which go back to the consumer-owned trust.
In conclusion, I support this bill but would like to sound one note of caution: in spite of this beneficial change of regulation, the Resource Management Act could still stifle the sensible development of this initiative. I think the beneficiaries of this bill will welcome National’s policy on revision of the Resource Management Act to give this bill true effect.
PETER BROWN (Deputy Leader—NZ First) Link to this
I thought the previous speaker made his point pretty well. I have to say he read that speech pretty darn well. Perhaps someone should advise him that from time to time when there is a little dot at the end of a sentence, one pauses; one does not carry on reading—that is the idea.
No problem! I would love to give National Party members advice, and I know that that member will take my advice willingly. Let me get back to a few basics. I hope the National Party appreciates this, because my colleagues here are going to give me a little bit of borax.
No, no. They will give me a little bit of hell, but never mind, I can handle that. When Max Bradford brought in his reforms—[ Interruption] They are getting a little bit irate now. At the time he did that, there was an abundance of electricity in this country. There was more than we needed. The theory was he would carve it up and there would be competing entities generating electricity, and that would reduce the price for the consumer. That worked for a year or so, but gradually the demand for electricity overtook the pace with which generation was being brought on stream. This bill is essential. This gives the lines companies more freedom to produce electricity. That is it in a nutshell; that is all it is about. Believe it or not, the first party to say that we should be doing that in—
No, it was not, actually. It was New Zealand First, and Phil Heatley, the member for Whangarei—and I have just checked this—followed us around on the campaign in 2005 and thought that that was a good idea and that National would follow that. That is how National became involved.
With due respect, I cannot recall Labour wanting to give too much more freedom to lines companies; but they do now, because, firstly, the country needs more electricity, and these guys are prepared to get in and do it—or we hope they are. Currently they can produce electricity but there is no incentive for them to do it, because they have to sell it all into the grid. This bill releases that obligation. But there is another incentive for them to do it, because the Government is putting on a moratorium; Part 2 of the emissions trading legislation, which the National Party voted for yesterday, will put a moratorium on base electricity produced from coal or gas.
I have real concerns about that, and I have no problem saying that, because I know that we have supported the bill, and my colleague Doug Woolerton stood in this House yesterday and acknowledged me as at least one New Zealand First member who has concerns about Part 2 of the emissions trading bill that had its first reading yesterday. Let me make it quite clear: I agreed with my caucus colleagues to send the bill to the select committee, but I do have real concerns about putting a moratorium on coal and gas.
Let me tell the House why; I know I am deviating from this bill but it is all intertwined and it is important that people understand the full reason. If we put a moratorium on coal and gas, it seems to be a little bit of a double standard, because we are mining coal and we are selling it to the Indians, the Chinese, and the Japanese, and two of those countries are not signed up to the Kyoto Protocol, and they are burning coal—
They are burning it, probably to produce steel and we are also giving exploration licences to people down south to go and look for oil. If they find oil, they will find gas first. We are saying that they are unlikely to be able to sell it into the New Zealand market, so that will discourage—
Well, you do not know that, with respect. You might think you know that, but you do not. If they find gas they will have no market in this country to sell it and they will have to sell it overseas. So that will be a disincentive for exploration for oil and whatever in this country. I say that that is a bit of a double standard, and that I have major concerns about supporting a moratorium on coal and gas, or thermal energy as it says in the bill. I want to be straight up. I wonder whether the Minister, the Hon Harry Duynhoven, will share that view. I know that the Greens will criticise me for it. I know that the National Party will criticise me for it.
But let me just draw the attention of the House to the fact that tonight we will finish in urgency, tomorrow 120 MPs will go home, and most of us—most of us—will get on a plane and fly to wherever. Then we will come back Tuesday morning on another plane, and we will probably stay in a hotel overnight on Tuesday night, and our carbon footprint will go up considerably. Yet we stand in this House—National Party members and Greens in particular—saying we are greater than the average member of the public and that we should be doing everything possible to reduce our carbon footprint. I will not blame the Greens for the delay in the House. This crowd over here—the 48 National Party members here—have done their very, very best to delay this House over the last few days in urgency. They have been talking waffle, garbage, and God knows what to extend it out. They want to put 50 questions to members in the House.
I have got quite a lot off my chest tonight, actually. I have been dying to say much of this tonight. I am grateful that Arsenal won today and got into the UEFA Champions League play-offs and will be playing a European team. But, more important, back to this bill: this bill is a very simple, straightforward bill, and New Zealand First will be supporting it to the select committee.
JEANETTE FITZSIMONS (Co-Leader—Green) Link to this
Once again the House sits to fix up Max Bradford’s dog’s breakfast, and I think back to just how many times we have had to do that since 1998.
JEANETTE FITZSIMONS Link to this
It was such a bad mess. I sat on the select committee considering Max Bradford’s bill, and we had officials who were lawyers and economists come along to the select committee and say: “It will work like this. Under this great market we are having, this person here will be able to sell to that person there.” I said, through the chair: “But they won’t, because there aren’t any wires running from here to there.” The economists and lawyers looked at me and said: “Wires? What have wires got to do with it?”. Well, I told them that if one is to sell electricity from here to there, one needs wires for it to run through. That idea seemed to be something that was completely beyond their comprehension.
The Max Bradford bill was a matter of pure ideology triumphing over all practicality and feasibility. It broke up an integrated and efficient system that was the envy of the world in that it had a plan for dispatching the most efficient generation first. That is replaced these days with a market, which sounds fine, except that a market can be gamed. A market can be gamed and we have no guarantee that it is the most efficient generation that is displaced first. The very sophisticated computer that Electricorp used to have did a good job of that. It broke up what it saw as a horizontal monopoly, with retail companies and lines companies owned in the same structure, and it was worried about cross-subsidisation. Well, it replaced that with a very much more powerful, and very much more serious, vertically integrated monopoly. We actually do not get competition, because we have five major generators that do not all retail in all areas. Where we have incumbent retailers in different regions that have virtually a regional monopoly, we do not have a fully competitive electricity market. We warned everyone at the beginning that we would not have that, because the market in New Zealand is too small for that, and ever since then we have been trying to fix it.
We learnt shortly afterwards that when that bill went through, 500 megawatts of new, renewable generation—mainly wind power—fell off the table, because the lines companies had been planning to build another 500 megawatts and suddenly they were not allowed to.
JEANETTE FITZSIMONS Link to this
Yes, I am saying that wind power got blown away by the Max Bradford reforms—500 megawatts. We have people standing in this House saying that not enough generation was built after that legislation went through. Well, 500 megawatts that would have been built was not built, because all of a sudden the builders were no longer able to do it.
In 2001 the first step was taken, which allowed lines companies to build small-scale renewable generation without a cap, and fossil generation up to 10 megawatts. That was logical for distributed generation to be built in the area where it was used, rather than having it built at one end of the country with massive pylons taking it to the other end. We do not lose as much on the lines if we use it locally. That sounded like a great idea, but what happened then was that the lines companies that looked into building such generation found they could not really sell the power, because they were selling it into a market that was totally controlled by their competitors. One does not get a very good price when one is selling through one’s competitors. The problem was that they were not allowed to buy hedges. They were not allowed to buy back-up for their power. If a lines company builds a wind farm and it cannot buy hedge power from the market to sell to its customers when the wind is not blowing—like, say, from someone else’s hydro, which is the perfect match for wind power—then it is hamstrung. It has to take whatever price the market hands out, rather than being able to sell at a good price. This legislation fixes that. Lines companies with generation will be able to buy hedges up to the level of the maximum output of their generation so that they can fill in the gaps when the generation is intermittent. That is a totally logical thing to be able to do.
I think it is also time, now that we have some of the new renewables like wind power happening, to revisit the definition of renewables in the 2001 Electricity Industry Reform Amendment Act. At that stage we excluded hydro conventional technology from the definition of renewables. We also excluded geothermal, because there were quite a lot of doubts at that stage about the amount of carbon dioxide that geothermal was putting out. At this stage, when we look at a future where we are trying not to use fossil energy for generation, it is appropriate to reinstate hydro and geothermal in that definition, and that is what the bill does. We need to look at this in relation to the review that is going on at the moment of section 62 of the Electricity Industry Reform Act, which ends the requirement to supply rural areas in 2013. That review is going on at the moment, and we need to make sure that this decentralised and distributed generation is able to fill that gap. We want some certainty now that companies wanting to invest in renewables in their local community will be able to do so and will be able to engage with the market in a fully competitive and effective manner, and will not be trying to do so with one hand tied behind their back.
We still have not dealt, though, with the question of the generators/retailers monopolies. We still have very, very large industries making very, very large profits, and shortly they will make larger profits still when the emissions trading scheme comes in. Three of them are owned by the Government and one of them is not. They are able to exert considerable monopoly power because they combine generation and retailing. That is something that has still not been addressed, and I suspect that when this legislation comes back to the House for a further look sometime in the future, that is the thing we will be looking at. The Greens will be supporting the legislation.
HONE HARAWIRA (Māori Party—Te Tai Tokerau) Link to this
Kia ora, Mr Assistant Speaker. Kia ora tātou e te Whare. Earlier this year the Māori Party caucus had the opportunity to meet with the Aotearoa Wave and Tidal Energy Association. It was a most instructive hui, where we were told that, given Aotearoa’s likely energy demands over the next 10 years, we needed to be creating a larger renewable energy “pipeline” now. The association reckons that wave and tidal power solutions, or “blue energy”, could start contributing to the country’s power supply within the next 5 to 10 years, and eventually meet up to 20 percent of the nation’s energy demands.
I was reminded of that meeting and the association’s passion for tidal energy as I worked on my speech for the Electricity Industry Reform Amendment Bill tonight, because the association also felt that marine energy technologies were on the cusp of commercial development, and that we should be capitalising on our world-class wave and tidal resources to test home-grown and overseas designs. So we urge energy leaders in Aotearoa to catch this wave of innovation if we are to optimise energy generation from renewable sources. The Māori Party has often raised in this House the need to confront the twin crises of peak oil and climate change. Indeed, just last week I issued a press release reiterating the call we made back in 2005, and oft times since, for the need for a cross-party parliamentary commission on peak oil.
Everyone knows too that the link between oil consumption and climate change is a priority issue for everyone in this House. So we again repeat the call for broad-ranging options to serve our future power demands, and to invest in new power generation options: blue energy, hydro, wind, geothermal, or whatever—just let us give it a go. We support the change to the definition of “new renewables” so that lines businesses can invest in all renewables, including hydro and geothermal, which had previously been excluded. We are well aware of the positive contribution that efficient geothermal generation can make to reducing carbon emissions. The New Zealand Council for Infrastructure Development tells us, for example, that efficient gas-fired power generation in and around Auckland could replace our dependence on Huntly coal, as well as reduce pressure on transmission capacity into the region.
It is very timely that geothermal generation is included in this broader definition of renewables, because just yesterday I was referring to the work of the Tuarōpaki Trust, which has just granted a 30-year licence to the Tuaropaki Power Company to generate power from its geothermal fields until 2027. We note that this bill also proposes to make it easier for lines businesses that carry electricity produced by others to sell the output of that part of the generation they carry, thereby encouraging them, and others, to invest further and, hopefully, in renewable energy generation. Just a small but necessary word of caution, though. We would hope that any such investment would include fair and just negotiations for those hapū and iwi within whose territories those resources lie. On another level, this bill also proposes to narrow the scope of ownership separation requirements so that where lines and supply are not collocated, line businesses can be involved in both generation and retail, again, to encourage more market investment in renewable energy generation and development.
In closing, then, we can again raise the critical importance of our whole nation preparing to deal with a pending energy crisis and we challenge all sectors of our economy and the wider community to utilise our limited natural resources in a sustainable, environmentally considerate manner so that all citizens of Aotearoa New Zealand can have access to affordable energy resources in a world of ever-increasing energy shortages and rising prices. Whatever our future might involve, it must include efficient management of electricity, and the Māori Party will be supporting the promotion of a range of strategies as part of those solutions. These include: the investigation of net metering and the viability of compulsory solar water heating in all new homes and buildings; the investigation of passive solar design as mandatory in all new dwellings; the retrofitting of all Government buildings with solar water heating and renewable energy power supplies where possible; tax breaks for approved passive solar, new and retrofitted design, buildings; and tax breaks for insulating, solar heating, and energy-efficient dwellings, businesses, and vehicles.
We look forward to discussing these and a whole range of other proposals as submitters come through the select committee process in relation to this Electricity Industry Reform Amendment Bill. Accordingly, the Māori Party will be supporting the bill at this reading. Kia ora, Mr Assistant Speaker.
Hon PAUL SWAIN (Labour—Rimutaka) Link to this
I do not do regrets, but if I did they would be that I had to sit and suffer on the select committee, which I was on with Jeanette Fitzsimons and others, that had to deal with the botch-up of the Max Bradford reforms back around 1997-98. The classic comment that Max Bradford summarised, in a short sentence, was: “As a result of these reforms, power prices will come down.” It was a very clear statement. I remember it; it was on the telly. He was asked: “Mr Bradford, what do you expect as a result of these reforms?”. “Oh,” said Max Bradford, “power prices will come down.” In fact, power prices went up. That was what happened. That was the problem with those reforms. As a result of that, Max Bradford lost Rotorua, his seat, and, of course, the National Government lost power in 1999. If members will excuse the pun, the National Government ran out of power as a result of those power reforms.
We sat in that select committee night after night, trying to get at what the reforms were supposed to do. The Government said that the issue was about getting rid of cross-subsidisation. Of course, there are a number of ways to deal with cross-subsidisation. Functional operational separation, for example, is one way to deal with it, and we are dealing with that in the telecommunications legislation. But, you see, the reforms were about ideology. They had nothing to do with reforming the electricity sector, trying to improve the cost of electricity, or trying to provide better services.
It was. It was about National’s mates. Which people suffered? The elderly and people on fixed and low incomes. They are the ones who paid the price for Max Bradford’s electricity reforms.
I recall what happened in the Hutt Valley. There was a sudden surge in privatisation, and shares were given out. Everyone got 1,000 shares, if members remember that. Of course, what happened was that low-income people—beneficiaries and people who had debt—took $800 instead of $1,000 because they needed the money to pay debt off with. Suddenly those people were disenfranchised. They had no ability to influence the power company, and they had no dividends as a result of selling their shares off for $800. The power price went up. So the people who could stick their shares in the bottom of the drawer, the ones who could afford to do that—people on decent incomes—sat on their shares. They were blue-chip stocks, and as a result the prices rose. The people on low incomes, once again, paid for that.
Then there was the great theory that electricity was a perfect market, and that if people did not like the energy company they were with, they could swap companies. Do members remember that? There was to be the great switch. The problem was that when customers rang to say they did not like a company and were going to swap to someone else, they did not hear back for 6 months. They never heard back. Then suddenly people ended up with power bills 9 months later, and when they did want to switch and swap companies, the companies said that yes, they realised people could do that, but it was all very difficult. The companies said they did not have the technology and were not ready for that. So the perfect market in which consumers were able to swap and switch companies was completely nonsensical.
What happened with regard to the meters? In the end the select committee said that the issue of the meters was too hard. The select committee members said they did not really know what to do about them, so things should just be left the way they were. The great theory was that new meters would start to be used and people would be able to tell straight away whether they were spending too much on electricity. The meter industry was all revved up. The silly old thing stuck on the side of my house is still there. What happened to the new flash thing that was to go above the bench top? It did not come. So that was a total fiasco.
Now I see Max Bradford is travelling the world as an international consultant—yes, he is—on behalf of the World Bank. Do members know what for? Electricity reform! Can members believe that? I say to the World Bank that it should look at the 1998 reforms and see whether it can get its money back, because the people of New Zealand certainly have not succeeded in doing that.
People have outlined the nature of this bill. I think it is a good bill. This is not the last time we will have to come back and fix the botch-ups of Max Bradford—I am sure it is not. As Jeanette Fitzsimons outlined quite clearly, the bill involves three policy changes. The first makes it easier for owners with lines businesses to sell the output of the generation they were permitted to own under the 2001 and 2004 amendment Acts—that is, for people to be able to hedge and to sell at times when there are problems with, for example, wind power. The second change is to allow the owners of lines businesses to be able to be involved in generation and retailing without limit outside their lines area. That was restricted before. And the third one is to define renewables, which is a really good thing, too, given the issues now around climate change.
So here we are again, under urgency, in the dead of night, ramming through legislation to fix the botch-up—the muck-up, the mess-up—of the Max Bradford “power prices will come down” reforms of 1998. As I say, if I ever get to heaven and I am standing there, and there is some discussion about whether I should go in or go downstairs, I will say I sat on that select committee—I sat on that thing, and I had to put up with about a year of listening to ideological nonsense about electricity reform in New Zealand. I am hoping that St Peter will say “Come forward, my son; you have done your time on Earth.”