Electricity and Gas Industries Bill

I raise a point of order, Mr Chairperson. Usually it is appropriate at this time that you announce who had the call when the bill was last being debated and how much time that member has. This debate does go back a couple of weeks—the Government’s programme is a bit shambolic—and I myself am struggling to remember, but I understand that I was on my feet, and I want to know exactly how much time I have left.

The CHAIRPERSON (H V Ross Robertson): The member is quite correct. He has 30 seconds remaining.

It will be 30 seconds that the Committee will not want to miss. I start by reminding members that this is a bill that National is totally opposing. It is a bill that every single electricity company—be it a lines companies or a generator, be it Government owned or private sector—opposes. It is a bill that some of the brightest New Zealanders who have been involved in the structure of Government issues around State sector issues oppose. It is a bill that only Labour members seem to favour. It is a bill that sets up a structure that the Government has ignored.

Only the Labour Party supports this bill. It wants to see the Electricity Commission instated, because it sees the commission’s prime role as being a taxation agent. The most important job of the Electricity Commission, which is given rise to in this bill, is to raise levies.

Interestingly enough, it does have a series of other roles, and I would like to go through them, because there are no fewer than 10—but its primary role is to impose levies. First of all, it is to be a policy adviser. It is then to be a proposer of regulations and rules—so it will follow its own advice. It is to be a purchaser or provider of market operations. It is to be a purchaser of reserve power. It is already involved in the Whirinaki scheme. That generator is supposed to sit there and not be used. The levy payer somehow has to fund that particular generator to sit there and do nothing for month upon month and year upon year, so that in a dry year, when there is a shortage of electricity, we can call upon it. Interestingly enough, it has been wound up a number of times already. I have heard that it has been wound up almost fortnightly.

Sitting suspended from 6 p.m. to 7.30 p.m.

I thank the member for Banks Peninsula for returning to the Chamber, in all her enthusiasm, to hear the completion of my speech. I was talking about the roles of the Electricity Commission, which seem not only numerous but in conflict with one another. I mentioned that the commission would be a policy adviser as well as a proposer of regulations and rules. Therefore, following its own policy, it will set regulations and rules. I do not know where the checks are there. It will be a purchaser or provider of market operations, and a purchaser of reserve power.

I was dwelling on the fact that the Minister of Energy and the future Electricity Commission seem quite delighted at the idea of money being spent on the Whirinaki station, which is supposed to sit there in the dry years and not be used. In other words, the taxpayer or levy payer funds that beast—that white elephant—which does nothing because its generation is excess, in case there is a dry year. I wonder at the absurdity of that. To prove the point, we find that that particular power source has been generating regularly over the course of the winter, which is quite amazing given that it is supposed to be there to provide reserve power in times of particular shortage.

The Electricity Commission has a fifth role as a seller of electricity in dry years—clearly, from that reserve power—a sixth as an adjudicator of fines and penalties, and a seventh as an industry facilitator.

💬 John Key: What does that mean?

That means it sits in the middle, loving all sides, not making the hard decisions, engaging in a bit of hand-wringing, and being indecisive—sending recommendations up the chain but not taking any responsibility. It has an eighth role as a promoter of energy conservation, and a ninth as a decision maker over the investment, services, and prices of State-owned enterprises. Certainly, in the electricity industry there are plenty of State-owned enterprises. In fact, I do not think the New Zealand public knows that this Government is up to its eyeballs in electricity generation. There is a belief out there that electricity generation is in the hands of private enterprise, yet we know that by far the largest generators—both in size and number—are Government owned, and are filling Dr Cullen’s pockets. The tenth role under the Commerce Act is as a regulator of the prices and services of distribution.

The ACT party, if anything, is even more strongly against this proposal.

💬 Phil Heatley: That’s impossible.

Well, we are very strongly opposed. The Committee should know that the submissions received were also hostile. There was a very good submission from Mr Scott, who used to be the Secretary to the Treasury, pointing out the inconsistencies in the bill, and pointing out that the ways in which it will work will not actually achieve the purpose. I think that the Minister, when he is looking at these particular clauses, should think about the fact that they will meet the worst type of lawmaking: “there ought to be a law”. That comes from a drought, from a possibility of electricity shortage, and from great public pressure for something to be done. The Government has reacted to the notion that for every problem there ought to be a law. So here we have a law saying that there ought to be electricity. When we look at it, we see that that is what it really is. The commissioners are really being told that somehow or other they have to create electricity.

What the Government has not looked at are the underlying reasons that there is a shortage of generation. The Government knows the reasons—the Minister does. He can take a call, because he knows. The Resource Management Act makes it virtually impossible to build generation, as does the ideology of this Government—the fact that it has signed up to the Kyoto agreement. Interestingly enough if Government members read the latest issue of The Economist magazine they will see that it is predicting that within a decade there will be the ability to build coal-fired stations that do not emit. But this bill is set up because the Government has a shortage of gas.

The impossibility of building a decently sized hydro scheme, and the Government’s ideological opposition to coal, mean that we are now being told we have to have this stand-by station. But does anyone actually think that that is a good use of taxpayers’ money? Even the Minister does not. Of course, Government members then try to pretend that it is not taxpayers’ money—because it is a levy. Well, does anyone think the generators will pay that? Of course not! The public of New Zealand will pay that.

This is a bill to put up electricity prices. Here we are, a country on the edge of the world, looking for every competitive advantage we can get, and one competitive advantage this country has had all through our lifetimes has been low electricity prices. But this Government is actually legislating against low electricity prices. I tell the Minister that that is what these clauses really mean, and he is bright enough to know that what I am saying is completely correct. This Government does not believe in this bill. We can tell that because no one has taken a call to support it. If they had, and if they believed that this bill would do some good, there would be Government members going for the call. But they have not, because they know that the bill seemed like a good idea a year ago when they had a blaze of headlines, when people were worried about electricity shortages, and when they felt there ought to be a law. Here is the “ought to be a law”—namely, an Electricity Commission. I ask the Minister how on earth that will help. Does anyone seriously believe that it will?

When we actually look at the projected energy needs in this country, we see that this reserve station, even after it is built, will not in any way be able to compensate for the sort of weather cycles we will get. We know that we will have occasions—and that is absolutely predictable—when there will be a shortage of rain. When we have a shortage of rain we then have a shortage of water in those dams, and that situation will come. It might be next winter, it might be in five winters’ time, but it will come. Will this legislation cover that situation? No, it will not. What the Government should be doing is looking at the electricity market. It should have some faith in the market to enable the market to work. For a proper price, the private sector is most willing to invest in electricity generation. We have only to look at the share price of the registered electricity generators to know that electricity generation is something that entrepreneurs are prepared to invest in. But they cannot get around the real problems that exist or around the Resource Management Act.

It is interesting to look at Part 1 of the Electricity and Gas Industries Bill, because that part states the purpose of the bill. The purpose, firstly, under clause 4(a) is: “to improve security of supply of electricity:”. I think the minority Labour Government is living absolutely in a fantasy world if it thinks that by forcing through legislation it can command the security of supply of electricity.

The Minister of Energy came into this Government 5 years ago, and had spent about 10 years in Opposition as spokesperson on energy. One would have thought that he came to his position with a vision and a blueprint for the energy portfolio, but the first thing he did was set up an energy governance board. It would get the whole industry together with consumers, and it was supposed to work out a solution, but what it meant was the Minister never really had any solution or vision for the energy future of New Zealand. The Hon David Caygill was the chairman of that particular phase. Well, millions of dollars later, the energy governance board disbanded and then the Minister once again displayed to the public that he actually had no solution or vision for the future of the electricity sector of New Zealand.

So, as I pointed out yesterday during the Committee stage of the Maori Fisheries Bill, whenever the minority Labour Government does not have a solution, the answer is quite simple. It sets up either a committee or a commission. Now, without really specifying the parameters or giving good guidance and directions, it has kicked this difficult issue to a commission to resolve, and to establish means and methods to secure the supply of electricity.

When we look through Part 1, we see pages and pages of details, reporting mechanisms, disclosure requirements, and dispute resolutions—exactly what the Hon Richard Prebble said—without examining the underlying problem of the shortage of generation, or the unnecessary restrictions on the usage of various means to generate electricity. The Government resorts to disclosure requirements, bureaucracy, and appointing the commission to perform a task that the Minister has no solution for. So I think the Minister in the chair, the Hon Harry Duynhoven, should take a call to explain to the New Zealand public how Part 1 of the Electricity and Gas Industries Bill, by setting up those disclosure requirements and the pages of code of conduct, would secure the supply of electricity to the public.

This bill is one of many that we have witnessed in 5 years under this Minister of Energy, but we are yet to really know or appreciate what the vision or the way forward is for securing electricity supply for New Zealand. Today the Government announced some tinkering to the Resource Management Act, and that will not be helpful, either.

It is a pleasure to stand on behalf of the Minister of Energy, the Hon Pete Hodgson, and reply to one or two of the issues that have been raised. Ms Wong talked about the Minister’s effort to encourage the generation industry to take a responsible, long-term approach to generation for the good of the country. Well, encouragement is a very useful thing, but it has proven to be not quite as easy to encourage the industry. That is the reason for now taking a stronger approach. The Minister signalled right at the beginning of the process that he would take that approach if the industry failed to respond in the way that he wanted.

What we have now is a situation where, basically, it is very difficult to unscramble a scrambled egg. I say to Mr Prebble, who conveniently forgot the basic rules of the market, this is about market failure. The reason that we do not have scads of unused generating capacity is very simple. It is that the maximum productivity from the investment in generating capacity is at 99 percent, and close to 99.99 percent of full load as we can get for as much of the time as possible, and that is where the maximum profits are to be made. Therefore, no generator will be voluntarily building unused capacity, and it is as simple as that.

💬 Opposition Member: That’s nonsense.

It is not nonsense; it is a basic rule of economics. If we go over to Victoria University, Economics 101 will tell us that.

Another reason, which Mr Prebble conveniently forgets, is that we have a large number of thermal stations in New Zealand and, very simply, thermal stations cannot be very quickly turned on and off. I have one in my electorate, which I am very familiar with. It is an older station, and takes some time to bring it up to load. Therefore, having reserve capacity able to be switched in relatively quickly is a very good solution in the interim. Mr Heatley talked about the absurdity of doing that. Well, I do not think it is absurd, and I do not think the people of New Zealand do either—particularly if it is a choice between having some higher-priced, unused capacity available for peak times or having various areas of the country with the power out, because that is the choice.

💬 Phil Heatley: How much of that did you use in the last little while?

As I explained to the member, that, in turn, is to avoid having to turn thermal stations on and off at a time when we want to be using as much of our water—and we have an excess of water at the moment—as possible. Our big problem has been with the storms we have had. The high voltage direct current link across from the South Island to the North Island has had a lot of salt contamination, and it cannot run at very high load factors when the dielectric is reduced by the fact that salt is on the insulators. That is a fundamental physics issue.

With regard to the private generators, which Mr Heatley said were numerous, there are actually four main generators in New Zealand, and three of those are State-owned. As I said, they are in a competitive environment, which was set up by Mr Bradford. The member could dial back through the Hansard record, if he wishes, and look at my speeches as associate energy spokesman at the time, and he will see that not only I but even very dedicated and active members of the National Party opposed that move. If he looks at my speeches in Hansard, I have quoted from one of those members, who was very well respected in the electricity industry. He said that what was being done then would be a disaster for New Zealand. He has been proven right, and that is the reason this bill is required now.

I think it is probably true to say that once we have scrambled an egg, it is very difficult to unscramble it. This bill is an attempt to make the market work in a way that provides that, even though some of the main generators are State-owned, those generators will operate in a competitive market. That is what the power pricing model is, and we should not ignore economic reality. Perhaps the National Party is suggesting that we should somehow nationalise Contact Energy; I do not think those members would want to suggest that for a moment. So this bill is a means of getting a positive result out of what was a pretty resounding mess that was left and, over the last 4 years, the Minister has tried very hard to make the electricity industry act responsibly in the interests of the country. I believe that through this mechanism, we will get to see it.

That was a speech from a Minister who does not have a clue what he is doing. That was a speech on behalf of a Minister who does not have a clue what he is doing, either. Apparently, we cannot unscramble an egg. Well, that might be true, but let us be very clear that in the 4 years the current arrangements have been in place, Labour has been in Government. Right through the whole change process, Labour has been there. Right now, whether or not those members want to admit it, more of the electricity industry is in direct Government control than was ever the case throughout the years of the 1990s.

💬 Government Member: Not true.

That is absolutely the truth, because what has happened is the big generators have become the big retailers. The Government has stood by and let them swallow up all the small organisations around the country that were there to represent the best interests of their consumers and to participate very directly in the market. We have to ask ourselves—I would have asked myself this if I were the Minister—how we can have competition when generation capacity is balanced with retail demand. How can we get competition in that sort of environment?

There is no incentive for any of the State generators to provide low-cost electricity, because they have captive consumers. They just quietly sit there and jack up the price as much as they possibly can, and the Minister says that he cannot do much about it. He will form a committee and call it a commission, and he will see what happens. I tell the Minister that nothing will happen as a result of this bill passing. The situation with regard to the security of supply of electricity in New Zealand will continue to worsen as long as the Labour Government chooses to put its head in the sand.

This country has not had the investment in electricity infrastructure that it should have had during these years of a growing economy. The reason is simple: nobody will stick up his or her hand on a very big project worth hundreds of millions of dollars while the Resource Management Act is acting as a block to that happening. We know that, right now, if one of the Ministers was prepared to do what is sensible and give the go-ahead for the Dobson project, security of supply in the top half of the North Island could be assured. No, the Government has no interest in that. So now we have the situation whereby South Island residents have been told by Transpower that it can no longer guarantee security of supply, even if enough electricity is being generated, because there is too much demand for the end product.

This Electricity Commission will comprise a group of interested people who will sit around writing reports and making recommendations to the Government. It cannot possibly do anything to hasten the development of greater electricity infrastructure in this country. All the talk about the work it might do to try to reduce demand simply ignores the fact that this country wants to live well, wants a growing economy, and wants people to have the benefit of living in, supposedly, the First World. I cannot see how we will achieve any of that if a group of Ministers are simply going to abdicate their responsibility to some bureaucracy.

The Minister is sitting there shaking his head and saying that they will not do that. I ask the Minister why we are passing the bill. Why are we setting up this thing? Worse, how much will it cost consumers? The purpose, apparently, is to improve the security of supply of electricity. The only thing this Government has done is to preside over racing electricity prices, and that will continue.

Firstly, I want to acknowledge that the Minister made some very good points in his contribution, as did Gerry Brownlee. When it comes to electricity, this country is in an absolute mess. National knew that just before the 1999 election. I received panicked phone calls from Max Bradford. When he put through the 1998 reforms, he did not listen to the advice of New Zealand First about putting through the appropriate amount of regulation. He did not regulate the lines for a start, but he wanted to do so in 1999. New Zealand First, though, could not reach an agreement with National just before that election to tidy up the electricity industry.

When Labour came to power, it made an attempt to rectify the situation with the 2000 bill, or whatever it was, but I say, with due respect to the Minister, that it put the focus on making the market work as against getting the right outcomes. Right now, electricity, as it relates to the general public, is in a mess. Prices are escalating weekly.

💬 Stephen Franks: You voted for it.

We have not voted for this bill, nor did we vote for the bill before it.

💬 Stephen Franks: You voted for the bill before.

I tell Mr Franks that we did not vote for the bill before. He should check Hansard. We voted for this bill to go to the select—

💬 Stephen Franks: In 1998.

In 1998 we did.

💬 Hon Richard Prebble: That’s when the egg was broken.

Can I take questions from these guys?

💬 Hon Ruth Dyson: Why did you vote for Max Bradford’s bill?

There was a clause in Max Bradford’s bill that allowed for regulation, but when it came to it, he did not implement that. There was quite a discussion behind the scenes about why he did not. But in 1999 he wanted to do exactly that; that is the fact of the matter.

From the public’s point of view, electricity prices are escalating weekly, if not daily. The supply is threatened—or appears to be threatened; is perceived to be threatened. Cheap gas is running low, and that will affect the price even more.

New Zealand First members asked themselves three very simple questions: firstly, will this bill help to guarantee security of supply? It goes a little way to doing that, by giving the regulators some power and some teeth.

💬 Gerry Brownlee: How does it do that?

It gives the Electricity Commission enough power to monitor the whole thing with a degree of independence. We have to be fair—the commission has an independent look about it. The bill goes some way to giving that independence. The second question we asked ourselves was whether the bill would provide fair and reasonable prices. It goes a teeny-weeny little way towards doing that, because it brings in the 30c per day maximum lines rate. That is a reasonable little thing for low consumers of electricity. I say to Mr Brownlee that maybe he should read the bill—he will see that in it.

But does the bill encourage investment into the industry—

💬 Gerry Brownlee: You don’t need a bill to do that. They could do that tomorrow if they wanted.

I am not denying that to the member, but that provision is in the bill, and it does assist. The third question—

💬 Hon Ruth Dyson: Could you repeat that? I didn’t hear because he was talking.

I said that the bill does provide for the 30c per day maximum lines rate for low users of electricity. That goes some way to reducing prices, and New Zealand First is quite encouraged by that.

The third question we asked ourselves was whether this bill would encourage investment into the industry to ensure ever-increasing capacity. I do not know how it will do that, because I do not think it does. It makes a token gesture by allowing lines companies to increase generation capacity from 25 megawatts to 50 megawatts, and makes a good argument for opening the door again so that lines companies can come in and become generators. I know the National Party wants to allow that. New Zealand First is not necessarily convinced that that is the way to go, but we believe the token provided for in this bill is not good enough.

In New Zealand we provide electricity to the amount, on average, of around 8,000 megawatts per year, and we use every megawatt. We use everything. In 1998 we had a surplus that we could sell. If we can produce something and sell it all, effectively we have a very limited market—if a market at all.

💬 Gerry Brownlee: You can’t store the stuff.

We cannot store it, no. We sell it all. If anybody who produces electricity sells it all, there is no market to put pressure on prices.

I can see the enthusiasm among Government members for my speech. It is very interesting to go to a bill and see what is basically a 1950s sort of Stalinist regulatory prescription. This is the Minister who is going to make electricity by making rules. This Minister says that reserve energy is created by specifying the conditions of securing and using that energy, and by specifying the circumstances and terms, including volume and price, by which that energy must or may be offered on the wholesale market.

I ask the Minister why the Government lost its nerve to use the sort of mechanism that would have rewarded every consumer. Why does nothing in the bill enable householders, who can save when we are short, to get the benefit of their saving? If they will not save, why does the bill not ensure that the price will give them a signal that power is suddenly more valuable when the rain is short, the wind has stopped blowing, and we cannot use coal because the Government has signed up to the Kyoto Protocol so that all the coal will be burned in China and India instead?

What is it about the market that has failed? We heard the words “market failure” tossed around, but what we have is the absolutely predictable outcome of a Government looking as if it is about to panic.

What investor is going to build any new capacity, when the Government is holding a big stick out and saying: “If we don’t like the price you charge, and it’s awkward and politically embarrassing, we will regulate.”? Why would new capacity go in, in those circumstances?

So what we had last year was a bluff being called. When the market said: “We won’t build new capacity in these circumstances.”, the Minister could then turn round and say that he had to go ahead and pay someone to build it. Of course the market is not going to agree, when it has a Government that came in, in 1999, saying: “We believe in looking active.”—“We as politicians will go out there and earn votes by looking as if we will thump people around who have lots of money.”; “We will thump them first with an increased tax rate, and then we will thump them with regulations that tell them what price they can buy at, what price they sell at, how much, and who they supply to.”—together with all the conditions that are now set out in clause 10, and the pages and pages of rules that the Minister can now make. Because it is patently obvious, to anyone who reads those rules, that it will be politically imperative to respond the next time there is any kind of crisis.

The Minister will not be able to resist when the major electricity users group, the telecommunications users association equivalent, comes and says: “We don’t want to pay the real cost of reserve generation for our industries. We would much rather that you took that from the taxpayer, or disguised it in a levy, or seized it from consumers, because you’ve got the power to do it. So please do it, Minister.” How will the Minister withstand that kind of pressure? Putting that kind of regime into legislation is an absolute recipe for being able to say—for the next 25 years—that the market does not work, because there will not be volunteers in a market whose building is unconstrained and when it is quite plain the Minister can stipulate its rate of return, at will.

This is that self-fulfilling prophecy: the Minister will get up and say: “I fear market failure, so I’ll give myself powers to deal with market failure.”, and of course there will be market failure. But it is not failure; it is simple market prudence. It is exactly what any investor would do. It is exactly what the Electricity Commissioner said when the Government came in and guaranteed the Meridian investment. The commissioner asked why people would go ahead without the benefit of a guarantee. Who will want to compete, when the Government can be panicked into stepping in every time there is a complaint?

In Part 1 we now have pages and pages of powers—or what look like powers—given to a Minister that in fact will end up as fetters. They will end up as irresistible demands on the Minister, because the Minister will not be able to stand there in front of us on the Holmes show saying: “Yes, I did have the power. No, I chose not to use it because I thought that using it would frighten people from investing in generation.” No, this Minister will not say that. The Minister will instead pull the levers and try to look as if he is generating electricity by his rules, and what we will have instead is a return to the New Zealand of the Muldoon days—the New Zealand where Mr Muldoon managed to fend it off for quite a long while.

This is a major part of the bill, and one we are very, very opposed to. I start by saying to the Minister in the chair, the Hon Harry Duynhoven, that his help on Part 1 in the Commerce Committee does need to be acknowledged, and I thank him for that help. If I can give a bit of history, it was during the latter stage of the bill—in fact, after all the submissions had been heard—that Transpower toddled around the back of the bike shed and went to see the Minister Pete Hodgson. Transpower said that it must be excluded from any legal action being able to be taken by a lines company or a generator that thought Transpower was at fault—if there had been a breakdown in supply, or something like that, and someone wanted to take legal action, Transpower wanted immunity from legal action. That was not in the bill, so I thank the Hon Harry Duynhoven for agreeing with me that interested parties should at least be consulted on this. And they were. A number of parties came to the select committee, and they were outraged by this. Meridian Energy, as a generator, and Orion as a lines company, are two that stick out in my mind. They were just outraged that they would have no legal remedy against Transpower if there was a fault that was due to Transpower’s negligence.

There are very few times that I am disappointed in the advice from officials, but this was one of them. The officials sat in front of the select committee and, to paraphrase it, basically said that this is what is done around the rest of the world, there are precedents for this; so be it. When we looked at those precedents, we saw that it was not done. In fact, other State-owned transmission companies do have the right to be sued—albeit it in a narrow range. We now have those clauses back in the bill, with a much narrower range around them.

So I start this speech by being positive and saying to Harry Duynhoven: “Thanks for your help in getting that part of the bill right.”, because I think we have got those clauses right in this part. What worries me about this part, though, is the levy on industry participants. I say to the Minister that we are tabling an amendment to this, and I am looking forward to other parties’ support on the amendment. We are not being radical. United Future members do not need to die in a ditch, just worrying about whether they will or will not support the Government—again. All we are saying is that before the levy is set, we believe that the Electricity Commission should have to consult all affected parties. That is fair enough.

At the moment, if one goes to the Electricity Commission’s website right now—and Mr Copeland can shake his hand; he does not think it is fair—one will see the levy that it is putting on lines companies. There are now lines companies planning legal action against the commission. They were not consulted. No one asked them. They were levied. “Bang. This is what you pay. That’s it. End of story. There’s your cost. Pay up.” That is a cost that goes straight through to consumers. I was with my lines company, Electra, this morning and they are furious about this. They are involved in legal action, using consumers’ money to fight this proposal. It will be interesting to see how the Labour members vote; whether they think that the lines companies should be consulted. That is all! We are not asking that they have to agree, because I do not think I could get people to agree to that. So it is a soft amendment, saying that at least the commission should have to consult.

I hope that the Committee will see fit to put this amendment into the bill, so we do not end up with the commission having the power to tax, with no accountability, at all. The Minister in the chair, the Hon Harry Duynhoven, is checking to see whether the amendment is soft, and I am pleased he is. I hope he takes a call. In fact, I hope the Government supports the amendment, because I do not think it is onerous on a Government, at all, to ask for consultation. For members who are following the debate, it is an amendment to add new paragraph (d) to subsection (1A) of section 172ZC, inserted by clause 16, which talks about the way the levy is prescribed. I am saying that we should add that any levy must be determined by the commission after full consultation with all the relevant industry groups, including consumers.

The reason I put in “including consumers”, and I do not expect them to go out there and consult every household, is that I have had Grey Power members in my office. They are very worried about the cost of the commission being levied on the lines companies, and the lines companies saying: “Oh, well, that’s a tax.”, and then whacking it straight through to elderly consumers. They are saying there is no consultation in the bill. All I am saying, by adding new subclause (d), is that any levy must be determined by the commission after full consultation with all the relevant industry groups, including consumers.

I have to say that I do not think we could get a softer amendment than that. It has no financial implications. I do not think the Government can go out there and veto it, because it is only consultation. Once it has consulted it can still see it, but at least it can give people a chance to have a say. The Minister must acknowledge this. Consumers are really wound up. They do not get a chance to have a say any more. They get a letter from Contact Energy, from their lines company, saying: “Your prices are going up.” Contact blames the lines companies. They end up having to go to the Commerce Commission to get it sorted out and they find out it was actually Contact that put the prices up all along. Genesis Energy whacked its prices up the other day.

Consumers just get this continual barrage of price increases. We can blame all sorts of previous structures, but we have a structure that the Minister is trying to make better. I do not think this bill does it, but I think that by putting in this amendment, at least we are giving people a say. We will be moving some further amendments as Grey Power in particular is concerned to have a say on some of the industry committees, and I think one appointment does not actually matter a big deal. I think that is a good point to have. We will be looking to do that. We will be looking to increase the lines companies’ ability to generate.

But I particularly want to make this point to Harry Duynhoven, given that he helped the committee dig the Government out of a hole on the issue of Transpower not being able to be sued when the fault was there. Given that he was reasonable about that, when the Minister clearly was captured by Transpower officials—the Minister did not even bother to come to the committee to explain it to us, but Mr Duynhoven was very generous in his willingness to work with the committee to get some better clauses in this part of the bill—my appeal to Mr Duynhoven is to support the addition of new paragraph (d) to subsection (1A) of section 172ZC, inserted by clause 16. This is a small change to enable us to go back to our lines companies and say that before the levy is placed on them, they will at least be consulted so that they do not find out about it, as lines companies did on this one, by logging on to the web and finding out that this is what their levy will be, so pass it on. We are not talking about a small amount of money. It is millions of dollars, is it not, Minister?

💬 Hon Harry Duynhoven: Yes, it is.

It is, and he nods; generously so. It is. It is millions of dollars. So I think that amendment will go a long way and I hope the Minister can see fit to support this. I hope that others in the Committee will support it, too. I know the Greens will because they are always worried about low-income earners and Grey Power. I do not think they will want to say to Grey Power: “Actually we just did not favour any consultation.”

I think this is a small move. It will not solve the Act. It does not alter my view of the bill at all in terms of supporting it, but it is a small move that says to the Government that if it is going to ram this through, as it is, at least put a bit of consultation in there for people who are most at risk. And those who are most at risk in electricity terms are consumers, who end up bearing all of the cost. Lines companies do not bear any of this, as none of the fees and none of the levies stay with them. They do not take it off their bottom line; it all gets passed through.

That is why Electra and two other lines companies are looking at legal action. What a waste of money! What a waste of the money that those lines companies will spend. Judy Keall, who was a member of this House, is on the Electra trust board, and she is looking at legal action to fight her Government because of the levy and the way it has been put on. What sort of nonsense is that? So when the Labour members who have gone on to the trust board are fighting their own Government, that tells us that all is not right in the state of Rome, or the state of Levin, or wherever one happens to be at the present time.

So I am saying to the Minister that I hope he can say a few words on this and explain to the Committee that he is happy to support it, because that will go a long way to facilitating this debate.

I accept the member’s point that there should be some consultation involved in this. Although he says it is millions of dollars, he should remember that that is a small fraction of a percent on power bills and it is to provide the reserve capacity needed that is not provided because of the way the market works. I say to the member that his amendment would be a good one if it were not already covered. If he checks section 172ZCA in clause 16A, he will find that the budget set-up includes consultation with the parties involved.

I will make a quick comment in relation to Mr Brownlee’s earlier comments about the Dobson project. The Dobson project just happens to be in the South Island. Mr Brownlee said that it could cure the supply problem in the northern part of the North Island.

💬 Gerry Brownlee: I raise a point of order, Madam Chairperson. I appreciate the Minister’s response, but, so that we be clear, I said it was about security of supply in the northern part of the South Island.

I thank Mr Brownlee. I misheard him, and I apologise for that. Mr Brownlee also said there was a responsibility on the part of the Labour Government for generators gobbling up retailers. In fact, all purchases of retail businesses by generators, and that includes the State-owned enterprises, took place in 1998 and 1999. All of them were completed by 1 April 1999, except in one instance. That was On energy in 2001, which was taken over by Genesis and Meridian because On energy had failed to take out hedge contracts before the 2001 winter. One of the reasons that this legislation is being put in place now is, of course, as a result of the shortages that occurred at that time, and the way in which the market did not cope and did not provide for security of supply. The electricity market is a technical, complex, and dynamic being, to the extent that we could never include in primary legislation everything needed to ensure that it operates in response to every situation, and, when we get into regulation and rules, Ministers have to be involved. This cannot be totally delegated independently.

I thought Mr Franks’ simple and dogmatic arguments that the Government was in panic and we should have a hands-off approach were interesting. That failed us years ago. Intervention is necessary at times, and that is what this is about. It is to ensure that, where necessary, the right amount of signal is given. The Electricity Commission has a large number of features. It does not simply regulate. It does not simply make decisions. It is not only about recommendations but also about regulations and rules, and three or four recommendations, regulations, and rules have already been promoted. It is about initiatives. It is about new legal initiatives that might be required. It gives effect to the Government’s policies on electricity. It is a much broader mandate than a simple regulatory body, as has been portrayed. It makes contracts for reserve energy to ensure security of supply. It will regulate and coordinate to ensure security of supply, to ensure not only that we have the capability in the system but also that fuel stocks are available, that we have coal stockpiles where needed, etc. It is very simple to write it off and say that it is a panic reaction. By the way, it is very hard to argue that this is a panic reaction on the one hand, then say on the other hand that for 5 years the Government sat on its hands. Clearly, that is not the case.

💬 Hon Roger Sowry: Are you coming back to the amendment?

Mr Roger Sowry says that the amendment does not cover consumer groups.

💬 Hon Roger Sowry: No, it doesn’t cover consumer groups.

I am not sure that the member is correct in that, because the advice I have had from the officials is that in the setting of budgets groups have to be consulted. The suppliers and participants—and, presumably, therefore, their voice from the consumer groups—have to be consulted. After all, as the member has just pointed out, many of them have trusts that are involved. Surely they represent the consumers in the area. I know that in my area they certainly do, until events that are happening right now that are quite separate from this bill.

💬 Hon Roger Sowry: So will Grey Power be consulted?

I am not sure of the answer to that, but I imagine that it will have very strong representation, particularly in Electra. As the member said, I am sure that with Judy Keall there, Grey Power will have very strong representation. But one of the features of the system we have now—

💬 Darren Hughes: She’s a former member who got elected to that trust. There’s a former member from our area who will never get elected to it.

Can I say in response to the interjection that Judy Keall was a very good and assiduous member of Parliament, and I am sure that the views of Grey Power will be strongly represented in that particular electricity trust.

Let me turn first to the amendment moved by Mr Sowry, and the response from the Minister in the chair, Harry Duynhoven. I say to the Minister that in the way I am following it, I am not sure he is correct. The clause that requires consultation—and there is such a clause—states: “The Commission must, before submitting a request to the Minister seeking an appropriation of public money for the following year, or any change in the appropriation in the current year, consult with those industry participants who are liable to pay a levy …”. So that provision certainly is there. But when we look at the levy, is there a requirement to consult? No, there is not. It appears to me that Mr Sowry’s amendment may be needed. I am reluctantly willing to support Mr Sowry’s amendment, because I would not want anyone to think that the ACT party thinks that once consultation has occurred this levy is a good thing. No, it is not. Also, to say it is only a few cents on the power bill is to avoid the reality of what this levy is for.

One reason the levy is there is for “endeavouring to ensure the security of supply”. That could be a bill of hundreds of millions of dollars. Indeed, I think the levy will go up and up, because this bill makes it very difficult for private sector generators to enter the market. It makes it less likely that they will do so. It will mean that the commission will have to build more and more of our generation. How do we know that? Genesis has already said that it will not build without a Government guarantee. If a State-owned enterprise, backed by the deep pockets of Treasury, is not prepared to build generation, then why on earth would a private sector investor? I believe we will see the Government finding more and more requests to build new generation coming either from its own State-owned enterprises, meeting by a guarantee, or from the commission.

The Minister has not responded to the points made by Mr Franks. I need to make this point to him: the market failure he is referring to, and that has occurred in electricity, is the result not of failures of the market but of failures of regulation. One of them is quite simple. We all know that if a large amount of electricity in New Zealand is consumed by households, and if they are all exempt every time we have a power shortage and it all falls on the private sector, then we do not have a market. If it were possible for consumers to participate in the market—and we participate by deciding to switch off and have cold showers for a while—and benefit financially from that, or if those who wish to spend and have electricity at a time of shortage pay more, then we have a true market. Would that work? Of course it would work.

The reason we have not had it is that successive Governments in New Zealand have not been prepared to allow consumers and electricity suppliers to enter into agreements like that. If we want to have an agreement with our electricity supplier that guarantees one’s electricity supply even in times of shortage, then we ought to pay more for it—of course we should. That requires some sort of reserve being put aside. But if people are prepared to go through an electricity shortage with less electricity—and I believe there are large numbers of New Zealanders who would—then they ought to be able to opt for a contract that allows that. In New Zealand only the commercial sector has been allowed to have those sorts of markets. The market failure the Minister refers to is a failure by the Government to believe in the market.

I draw to the attention of the Committee, to those members who may not have read this, the number of regulations the Government is proposing here. I think we are unfair to describe this as “Muldoonist”. I cannot recall a bill that had these sorts of regulations. As far as I can see, the Minister will be able to regulate virtually anything. This is Stalinist. I draw the Minister’s attention to clause 9, which contains the provisions relating to regulations. In the wholesale market we are able to have electricity, including pricing—I guess Muldoon went in for pricing—clearing, settling, and reconciling market transactions; scheduling and dispatching electricity; disclosure of market information; disclosure of information on hedge and contract volumes and prices; the promotion of hedge, including futures, markets; minimum prudential standards for market participation; and minimum standards of market conduct. That is just for wholesaling.

In generating there will be electricity generators to hold and provide for reserve fuels, including water—we are going to regulate that; electricity generators to offer by tender a minimum volume of contracts; electricity generators to post buy and sell prices for hedge. We are to have disclosure of information on hydro lake levels and inflows, thermal fuel stockpiles, supply contracts for thermal fuels, capacity to generate, disclosure of offers into the spot market, and disclosure of information on spill. Then on transmission there will be quality and security standards for transmission systems, and reasonable terms and conditions on which Transpower must enable distribution lines. It goes on to expansions, replacements, or upgrades, and so on, for pages and pages.

This industry has not been nationalised; it has been regulated. It will be totally regulated. Will new participants want to enter into this industry? I say to the Minister that the market risk of entering into generation now will be enormous. That is why the question of the levy is important. In effect, we are nationalising the building of new generation. That will be produced by levies. I realise there is consultation in some areas, but I do not think it covers the levy. If we do not accept Mr Sowry’s amendment, we will have a situation whereby a substantial amount of tax in New Zealand will come through our power bills. It may be the result of a commission that goes power mad and decides to start building more generation than we need. Of course, that was the situation in the 1950s, 1960s, and 1970s in New Zealand, and I think it could well occur again. We could end up with a gold-plated electricity system, where there is no proper debate or discussion as to whether the reserve generation is needed.

A consultation clause, of course, is no substitute for the disciplines of a market, but if we are not going to have a market, then we should at least enable consultation. There ought to be consultation by those who will be affected, which will be the lines companies. I am not sure whether Grey Power could make a great contribution to this matter, but I most certainly believe we ought to ensure that a consultation clause is included. For that reason, even though I do not want to have this interpreted as the ACT party supporting a levy, I recommend that we vote for it. I ask the Minister to consult his officials. It does appear to me that consultation is only about a request for public money. Is he saying, when we look at the definitions, that a levy meets that? In looking at the definitions clauses of the bill, I cannot see that. It may be that he can direct me to some other clause, but I think that his officials are being disingenuous when they say that, yes, there is some consultation. Yes, there is, but is the consultation over the levy each year; if so, where is it? I cannot see it in the bill. If I cannot see it, then I bet members that, when this bill has gone through, the commission will not be able to see it, either.

The commission will not want to consult over the levy. As the bill states, the commission can think up any figure it likes, which could be hundreds of millions of dollars. Personally I think that is a tax, one that if it went through this House we would debate. We would call for consultation, and we would have a great deal of discussion on the matter. We are taking a power of taxation and giving it to this quango, and then the quango, I believe, when it comes to the levy itself, will not have to consult.

I move, That the question be now put.

I would like to continue this debate, particularly along the lines on the issue of consultation. Members may be interested to know that although we have been debating one particular levy, this Electricity Commission being set up under this bill has the potential to put in place seven different levies that will ultimately hit consumers, and whether those consumers are the levy payers or the taxpayers, the reality is that they are the mums, dads, and businesses in this country.

The Electricity Commission can have a systems operation levy, a market operation levy, a supply security levy, if it wishes—and I am sure it will—an electricity efficiency levy, and if that is not enough, it can have a consumer protection levy. One has to ask how a levy protects the consumer. I would have thought it should have a levy protection levy with all those coming down. The sixth type of levy is an electricity transmission levy. There are six different levies that this Electricity Commission can put in place in order to tax consumers, because, ultimately, they will pay. But, last of all, the commission can levy what is known as “other activities”, and that can be as broad as the imagination will allow.

I have an amendment put forward by Roger Sowry in relation to the Whirinaki issue, which I would like to raise with members. The amendment adds to clause 19 new subclause (5), which states: “The Minister must consult with all other generators before determining the terms of the Whirinaki contract.” Here we have the absurdity. Clause 19 informs us that the Minister may direct the commission to enter a contract relating to the Whirinaki power station. Here is a power station—a diesel generator, by the way—in the Hawke’s Bay, commissioned last year, operating on diesel, and not as a State-owned enterprise, but in all senses basically subject to the Electricity Commission, which is supposed to provide security of supply.

What is happening is that the Electricity Commission is purchasing reserve power. Whirinaki will be sitting there on a retainer, which will cost the consumer, and it will kick in when there is a high electricity demand where supply does not meet demand. The Minister is prepared to legislate a reserve generator to meet the demand when supply is low, yet he is not prepared to legislate for, or on any policy platform support for those in the private sector, or even for State-owned enterprises to go into the construction of generation plants themselves.

The Minister will not promote, in any way, coal generators, because he is against coal. He will not promote, in any way, geothermal generators. We saw this in recent times when the extension of the geothermal generation at Ngawha in the far north was literally put on the back-burner by this Government. The Minister will not promote, in any way, other generators around the country. In fact, as the Hon Richard Prebble mentioned, the E3P project in Huntly was not going to get off the ground at all unless it was underwritten, because that generator had no confidence whatsoever that it would be a runner with current Government policy and legislation.

I move, That the question be now put.

I welcome the opportunity to comment on Roger Sowry’s two amendments. I think he has put his finger right on the button. I am surprised—actually, I am a bit embarrassed—that we did not pick these things up at the select committee. They are very obvious things, and I compliment the member on bringing them up.

With due respect to the Minister, the clause that he referred to does not cover the issue, and these two amendments should be given serious consideration by the Government. They are fairly innocuous, really, and simply state that there is an obligation to consult, and we will support them wholeheartedly. The Hon Richard Prebble, either wittingly or unwittingly, illustrated quite clearly how badly the market is failing in this country in terms of electricity. I say to members of the Committee that it is not acceptable to the average New Zealander living in the 21st century to have to pay extra to have access to their power all the time.

💬 Hon Richard Prebble: They do it elsewhere.

They might do it elsewhere, but that is moving back to the 19th century. That member should get into the 21st century. We want power at the flick of a switch at reasonable prices, and that is the problem that MPs must face up to. The question that New Zealand First has asked is whether this bill does that. The answer, unfortunately, is no, it will not do it.

💬 Hon Richard Prebble: Well, you’re right about that.

I am right about that, and I am right about the other one. That member should ask any members of the public whether they want electricity any time of day at a reasonable price.

💬 Hon Richard Prebble: Win Lotto!

He is comparing wanting electricity with winning Lotto. I would suggest to Mr Prebble that average New Zealanders see the winning of Lotto as something that is extraordinary, but when they go home at night on a cold day they want to be able to put the fire on and the lights on. I know that the average New Zealander is accommodating and would say: “Well, I don’t want all the lights on. I’ll turn them off in this room if I’m only using that room.” People do not want all their lights all at the same time, but they do want access to electricity 24 hours a day, 7 days a week, 365 days a year.

I believe that people want that electricity delivered at reasonable prices, and that is the challenge that we in Parliament must face up to. That is the issue that the public wants us to address. Will this bill do it? New Zealand First says that it will not. Will a competitive market deliver reasonable prices to the average consumer, to the business consumer, and to all consumers? The answer is that if there is a working market, then it will, but we do not have a market that is working to the fullest extent. Can we get there? This bill will not help us get there. In the view of New Zealand First it will not encourage investment in sufficient quantity to develop capacity, supply, and generation.

We need to face up to the fact that we have billions of tons of coal in this country, and use it at a reasonable price to generate electricity. The amount of carbon dioxide that would go into the air or wherever is negligible on a worldwide scale. We sell it to India and to China. They burn it with impunity, and we restrict it here. I say to the Minister in the chair, Mr Duynhoven, that he should think again about the use of coal. Wind will go so far—we can get so much wind power relatively cheaply—but to get the full amount of electricity we need will be very, very costly. Cheap gas is running out. We know we have to find an alternative, and it is sitting there. We have enough coal to supply electricity to this country for hundreds of years, but we prohibit its use for ideological reasons. I say that is daft. New Zealand is a relatively small country with a very small population on a world scale. We should be using coal to generate electricity at reasonable prices.

💬 Hon Richard Prebble: The member is right again.

I am right on about five things.

💬 Gordon Copeland: I think so, too.

United Future agrees. I think I might have a re-think now! I say seriously to the Minister that this is not a joke. We are using electricity on an ever-increasing basis.

I move, That the question be now put.