Hon LIANNE DALZIEL (Minister of Commerce) Link to this
I move, That the Electricity Industry Reform Amendment Bill be now read a second time. 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. I actually recall being in the House when that particular, interesting legislation was passed, and I recall Max Bradford being the Minister responsible for it. I also recall the promises of lower costs of electricity, but that was not to be.
The reason for this amendment bill is to follow up on amendments passed in 2001 and 2003, which allowed electricity lines businesses to own generation up to specified quantities if they complied with corporate separation and arm’s-length rules. This bill seeks to encourage lines companies to invest in permitted generation, particularly renewable generation. It proposes to achieve that by relaxing some of the corporate separation and arm’s-length rules relating to generation and retailing, and by allowing electricity lines businesses to sell more electricity, to hedge the output of their generation, and to invest in generation and retail without limit outside their own lines areas.
Of course, this bill has been to a select committee since the time it was introduced, so I feel that that is sufficient for my contribution on the second reading of this important legislation. I recommend the bill to the House.
LINDSAY TISCH (National—Piako) Link to this
It is very interesting that the Electricity Industry Reform Amendment Bill, which we are having a second reading on now, is in line with the National Party’s policy at the last election in 2005. Here we have a bill that will be passed, and National is supporting this bill because it is something that we have identified as being important. It is actually consistent with National’s 2005 policy that would have allowed line companies to enter into generation.
Lines companies have an interest in electricity distribution. They also have very stringent limits on what they are able to invest in, at the present time. Some have the ability to invest in generation, and this bill implements policy changes, firstly, to make it easier for owners of lines companies to sell the output of the generation they are permitted to own, under the 2001 and 2004 amendments to the Electricity Industry Reform Act 1998, often referred to as EIRA. The objective is to encourage owners of lines businesses to invest in permitted generation, especially generation from renewable sources. That is fine; that is something we subscribe to. It will be achieved by allowing retail sales of electricity to go up to 100 percent of the nominal annual output capacity of permitted generation, by allowing trading and financial hedges, by allowing grid-connected generation to count as local generation in certain circumstances, by requiring at least one independent director and not permitting executive directors, by allowing the same person to be a manager of both companies up to a threshold of 30 megawatts, and by allowing the cost of corporate separation and compliance with arm’s-length rules.
The second policy change is to narrow the scope of ownership separation requirements in order to focus on the geographic areas where there is potential for the exercise of market power and anti-competitive practices—namely, where lines and supply are co-located. And the third main change is to amend the definition of “renewables” to include all renewable energy sources.
We have just debated another bill that has had its third reading, the Commerce Amendment Bill, which adds value to the points we are now debating under the Electricity Industry Reform Amendment Bill. Year in and year out, we have power shortages. Not a year goes by when there is not some concern about whether there will be enough electricity, over the winter periods in particular, to be able to have the lights on in our homes in Auckland and to be able to keep industries operating. Even this year, with having experienced so much rain in the Waikato, we find that the Southern Lakes are still below their normal levels. Yet given that we have had so much torrential rain, one would expect that the Southern Lakes would have had the water. But that has not been the case, and it has not been the case for over the last 9 years. One of the things in terms of generation, and in terms of the whole energy sector, is that this Government has made it far too difficult for investment in these areas.
Well, it has, because in the 9 years of the last National Government we put in 1,600 megawatts—1,600 megawatts of new electricity came on line. What has it been under Labour? What has it been under Labour’s 9 years? It has been less than 700 megawatts. So why is there no generation? Why are we having these challenges each winter, as it comes up, when people talk about shortages of power and of maybe having to cut back? I will tell members the statistics; I am not making them up: in the 9 years of a National Government we put on line 1,600 megawatts—1,600 megawatts went into the grid so that we could have security of supply in our homes, in our businesses, and wherever we live. This Government, which is on its last legs now, has put in only 700 megawatts or less over the last 9 years. That is an absolute insult, when energy is part of that infrastructural area we need to be so mindful of, whether in terms of energy, roading, or broadband. This Government is found wanting in those three areas.
Let us put this in the energy distribution concept—electricity distribution is important in underpinning New Zealand’s economy. The Government has $6.3 billion worth of assets, and that compares with Transpower’s, which is separate at $2.4 billion. There are 1.9 million connected consumers. There are 149,000 kilometres of lines, and that compares with Transpower’s 11,000 kilometres. The forecast investment is $3 billion to $5 billion over the next 5 to 10 years, to meet the needs of consumers. At the moment the demand is of $3 billion to $5 billion per year, and hopefully with this bill we will be able to achieve those figures, because at the moment we are falling far short. Demand for electricity is growing as the economy grows, while spare capacity networks have been consumed and assets are ageing.
The digital age is driving demand for a more reliable energy supply. Our prices have declined by 4 percent in real terms since 2001. The electricity distribution sector can have an important role to play in distributed generation and fibre optics networks if regulation will allow, and that is certainly what we are trying to achieve here.
What are the potential benefits of this bill and of the Commerce Amendment Bill? There will be some certainty that there will be the $3 billion to $5 billion of new distribution investment over the next decade, which could be distributed in a timely manner. The investment will improve security of supply through certainty over longer-range planning. It will increase reliability and quality. We will see new technology implemented sooner and more often. There will be a lower cost of the regulatory environment, and something we are always very mindful of is that the costs associated, and any regulation that goes with those costs, are fair and equitable.
The new regulatory regime will provide the environment for lines businesses to improve efficiency of energy use—for example, by reducing line losses, upgrading demand sites and management services, and installing smart meters. A number of technologies will become available to be implemented under a new regulatory regime, which of course is to increase the distribution generation.
Strong consumer protection still remains with this bill, and the bill will be beneficial to smaller lines companies. There are 28 lines companies, and 16 of them are owned by trusts. The bill will be beneficial to smaller lines companies, like those on the West Coast in Buller, where my colleague Chris Auchinvole comes from. Those companies will be the beneficiaries of this legislation. The bill frees up small companies to get engaged in electricity generation, thereby improving their income and securities of supply. It limits, of course, their independence on imposed costs from other generators.
Without this bill becoming law it will be extremely difficult for us to progress and to provide that security of supply that we believe is so important. As I said, this is in line with what National said in its policy of 2005. We said there that our policy was to allow lines companies to enter into generation. The select committee has made only minor changes to the substance of the bill, and the changes were made unanimously. National is happy to support the second reading, and we look forward to the Committee stage shortly.
Hon HARRY DUYNHOVEN (Associate Minister of Energy) Link to this
As the Associate Minister of Energy it is a pleasure to rise to support the Electricity Industry Reform Amendment Bill. I gave the first reading speech on behalf of the Minister, the Hon David Parker, on this bill.
Can I just ask the previous speaker from the National Party, whose conservation policy was announced this afternoon by the Labour Party, whether National might announce another energy policy, and whether National will sell the electricity assets that belong to the three State-owned enterprises belonging to the people of New Zealand. Will National sell them? There is absolute silence. The second issue is whether National’s policy is to go nuclear. Those are the two issues that the people of New Zealand are really interested in.
In talking about this bill, I say that it is absolutely needed, simply because of the mess that was inherited and the number of things that, over the years, have proven to be deficiencies, which we are now addressing.
I commend the Hon David Parker, and I commend the select committee. I think the bill is excellent, and I am sure the House will pass it—perhaps not unanimously, but all the thinking people in the House will pass it
PANSY WONG (National) Link to this
The previous speaker who has just resumed his seat is Harry Duynhoven, who just typifies the concern the public have. Labour is now so bereft of any ideas that it resorts to announcing National’s policy. Labour has nothing to say. The member had nothing to say about the Electricity Industry Reform Amendment Bill. It is amazing that 9 long years ago the Labour Government thumped the table over what Max Bradford did. Does this bill reverse anything of the 1998 electricity industry reforms? What happened to Labour’s vision for energy security for New Zealanders? Where is the vision? I want to ask this question on behalf of the New Zealand public, particularly the good people who live in Botany Downs who told me they are sick of hearing, every winter, a debate about whether there will be power cut, or a blackout. Would the passage of this bill save New Zealanders from facing the awful threat of power cuts and blackouts every year?
National will support this bill, although I doubt very much that sneaking this little bill in under urgency—in the midst of the vacuum, the total lack of vision concerning security of energy supply for New Zealanders—will save anyone from reliving the nightmare of the last 9 years. This is a very timid approach to electricity industry reform, but, unfortunately, like the rest of the public, we have stopped expecting any vision or any bold movements. A little bit of an improvement is almost welcome because, unfortunately, there is nothing on offer. So I just want to tell Labour members that although they are continuing to run out of ideas, they should stop stealing National’s policies.
It is a pleasure for me to take a short call on this short bill. It shows a lack of vision and I think it deserves only a short, sharp rebuttal from members on this side of the House, because I do not believe that rushing this bill through under urgency will convince New Zealanders that the 9-year nightmare of threats of power cuts will be resolved.
PETER BROWN (Deputy Leader—NZ First) Link to this
Let me make it quite clear that New Zealand First supports this bill. We will support it right through the process unless something major changes during the Committee stage. But we see it as another piecemeal attempt to add to the Electricity Industry Reform Act of 1998; it is a piecemeal attempt to patch it up. National is claiming credit. In 2005 it wanted lines companies to get involved in generation. We suggested that to Max Bradford in 1998. We said he should not close the door completely on the lines companies. And what did he do? He closed the door completely on them. Let us face it, the Max Bradford reforms worked at the time simply for one reason only: we had more capacity than there was demand for electricity. It set up four State-owned generators. Contact Energy was independent but owned by the State at that time, and three new ones came on board, so there were four competing with TrustPower Ltd to sell electricity to the country, and they had more to sell than New Zealanders were using. So there was downward pressure on prices. But, gradually, bit by bit, that was eroded. The demand went up, and the capacity was not coming on stream. We were told at the time that we needed to bring in 150 megawatts or more per year. Lindsay Tisch told us that in the last 9 years 700 megawatts have come on stream. I do not know whether he is correct, but I know it is a good deal less than 150 megawatts per year.
Hon Parekura HoromiaOn this occasion I will, because I think he is on the right side of it. I say to this House that concerns around electricity are major issues with the public. There is the issue of security of supply and the issue of price. [ Interruption] I think we are having a two-way conversation across the Chamber in the middle of the debate. Electricity is so much of an issue that New Zealand First has had more correspondence on this issue in the last few months than ever before. The price keeps going up. We are told we have a competitive market, but the public are not seeing that.
New Zealand First passed a remit at its recent convention. Our members want to investigate the feasibility of amalgamating the three State-owned generators—that is, Mighty River Power, Meridian Energy, and Genesis Power. New Zealand First members want to give consideration to the feasibility of amalgamating those three. To answer Harry Duynhoven, I say I have had more correspondence in recent times on this country having nuclear power. It is not a position New Zealand First supports, but I have to say we have had more correspondence in recent times about going nuclear.
Hon Dr Michael CullenIt is good to hear the Minister of Finance say it is more expensive. But people are concerned about the environment and the cost. That is where we measure the debate, and I would take the Minister of Finance on over that. I am not advocating it. New Zealand First’s position is to stay nuclear free, but I am just pointing out the concerns of the public. They want the concerns of the electricity industry addressed. This bill goes some way towards that. It allows lines companies to get involved in generation, which is something we said to Max Bradford, as I recall, in 1996 or 1997. So it is all very well for Pansy Wong to say National had the idea in 2005. We said, and I think Labour also said at the time: “Don’t cut it straight down the middle.” This bill allows the lines companies to have more generation.
The member should read the bill if she wants to know what it says. This bill will certainly get New Zealand First’s support.
Let me tell the House what we should be trying to achieve as politicians in terms of energy. We want an abundance of supply. We do not want to keep worrying year after year about whether the lakes are low. We want an abundance of supply. We want a reasonable price. If we have a market, then we want a genuine market, where companies compete and bring the prices down. That is not happening. We want an electricity supply on a sustainable basis—I think the National members agree with that, and I know that my Labour colleagues agree—and, of course, we want it to be as environmentally friendly as possible. Hence the public concern.
Some members of the public, probably only a small minority, are writing in more and more saying that we should look more closely at nuclear power. That is not my position and it is not my party’s position, but we are facing realities. There are some people out there who want to take a closer look at doing that. Just to dismiss that idea and to simply say that we will amend things here in a piecemeal attempt in the Max Bradford legislation of 1998, or whenever it was, is a way forward, but I say that it is not the long-term way forward. We should be looking more closely at the way we supply electricity in this country, and it may well be that we will have to amalgamate the three big State-owned players or to show a little bit more vision. I do not know the answer; all I know is that this bill will make an improvement. But whatever we say, this is a piecemeal, patch-up job. Thank you.
CHRIS AUCHINVOLE (National) Link to this
I listened with interest to the previous speaker, Peter Brown, as I always do. I remember that I followed him in the first reading debate on this bill. I am not quite sure what it is about this Electricity Industry Reform Amendment Bill, but here we are, debating it in urgency. I noticed from checking back on the first reading speeches that that debate seems to have been held in urgency, as well.
The reality is that there is a great need for urgency in electricity matters—a great need—and a very dilatory approach has been taken to ensuring that we have a secure supply of electricity in New Zealand. I would vary slightly from the view of the previous speaker that we have to have an abundant supply. It is a little bit difficult to convince electricity-generating companies that they should have capital at risk of being used. I think that what we need is a sufficient supply with appropriate back-up where required.
“Thank you very much.”, I say to Dr Cullen. I thought of that all by myself. But it does follow business logic.
There are, of course, costs to deferral. If we look at the sad situation of the Dobson dam, which was put off for 8 years before it was morphed into the Arnold River scheme, we see that there was a huge loss of opportunity cost in that. But the reality is that even though the project now has its approvals and its permits, it is not guaranteed, because the company involved in building it still has to consider whether it is the most attractive option for it.
It is a delicate situation, but it has not been helped by the figures given to us by my colleague Lindsay Tisch, who mentioned just how short the present Government has been in producing electricity generation over the nearly 9 years of its tenure. The Minister of Energy can wax as enthusiastic as he likes about all the activity that is planned for the future current compliant projects, but even he has to acknowledge—and he does—that there was a considerable lag during the middle years of this Government’s tenure. Perhaps saying “middle years” is a little unkind, because it signifies that there was a beginning and that there might be an end fairly shortly. But there was a pause, and that pause has not been without consequence.
If we look at the Tasman end of West Coast-Tasman, we see that there are whole industries up there that drop shifts in the winter to help conserve power, which restricts their usage. Consistently now, every 4 years, we seem to have this stricture on power. Apart from that, one of the consequences is that new companies cannot really start up unless they can anticipate having a secure supply. That is where we think this bill will help, and National is very happy to support it.
The purpose of the bill is to better ensure that costs and prices in the electricity industry are subject to downward pressure, that the benefits of inefficient electricity pricing flows through to all classes of consumer, and that new investments and generation from renewable energy sources occur.
Quite apart from the other areas, this legislation will be of considerable benefit to West Coast-Tasman, which has smaller lines companies, such as Westpower, and Buller Electricity in Buller. The mission statement of Westpower specifies what it does. It distributes electricity, generates electricity, and provides power systems, electrical contracting, asset management services, and electrical engineering consultancy services. It actually has quite a humming business there. The ElectroNet part of its business has about 120 very skilled employees. Both Westpower and Buller Electricity exist for the community and are owned by the community, but the present legislative and regulatory charges on companies the size of Buller Electricity and the larger Westpower company are considerable.
This bill will allow small lines companies to become engaged in generation, particularly hydro schemes, as the bill specifies that hydro power is renewable. Without this legislation, if Westpower wished to engage in building a hydro scheme, it would have to seek a special exemption from the Commerce Commission. This costs a load of hooch and is prohibitive for a small enterprise even to consider. The bill allows companies to look at having hydro schemes for an increased security of supply and a reduction of supply costs. Let us remember when we look at electricity that there is a 20 to 30 percent peak time loss of electricity simply in its transmission. Where it comes up from Lake Coleridge and across Mount Horrible through into the West Coast at peak times, we have a 20 to 30 percent heat loss in transmission. In North Canterbury, Marlborough, Tasman, and the West Coast 73 percent of the power used is brought in from outside the area. So we are almost guaranteeing that we will always have high transmission loss.
We need to grow the telephone book on the West Coast, so we need development. Without power there will not be any development. We have 56 rivers, we have heaps of creeks, but we have limited reservoir capacity. New systems will probably depend on run-of-river operations taking full advantage of the renewable and ever-abundant rain resource that we enjoy so much down on the Coast. There are added advantages. Westpower, as I mentioned earlier, has a contract subsidiary company called ElectroNet. It employs 120 people, with a very high calibre, high level of skills. Building generation builds career paths in that sort of company. It is with pleasure that National supports this bill, which will none the less still require the National Party’s revision of the Resource Management Act for this to be a truly useful initiative.