Electricity and Gas Industries Bill

I want to thank members for coming to the Committee, because this is a very important bill. Part 3 is where the Minister can direct the Energy Commission. For the benefit of people who are listening to this debate, I will explain that we have a bill here that sets up a large bureaucracy—in fact, it is growing by the week. Most weeks there are advertisements for staff for this bureaucracy in the Dominion Post. The commission is charged with the job of acting in the interests of a range of people—both generators and consumers. Where those interests collide, then the Electricity Commission has to have the Wisdom of Solomon and make decisions and recommendations to a Minister about the energy market.

Unfortunately, before this bill has been passed the commission has not only been established by the Government but, in a sweep of the arrogance that we have come to know this Government for, has in fact been ignored by the Government. What the Government first did with regard to the commission was to decide that one of the Government’s own entities, Genesis Energy—to which the Government has appointed the president of the Labour Party, Mr Mike Williams, to sit on the board—should have a special deal with the Crown to underwrite a facility that it is building, namely a gas-fired electricity plant. Although the commission is not even established and up and running, the Government’s first major action in terms of its energy policy was to decide to ignore the commission and to do a cosy deal with the president of the Labour Party and Genesis Energy, because he is on its board, to allow Genesis Energy to be underwritten as it goes and builds a new gas-fired power plant. The independence of the commission then comes into question. When we look at Part 3 we can see that the independence of the commission is brought into question because the Minister can direct the Energy Commission as to what it does. So we have a body that is established to give frank and fearless advice, but the Minister can direct it. Although we have a commission that has been established to give free and frank advice, the first thing the Government does is to go round to the back of the bike shed and ignore it, and the next thing is that it is passing a bill in the House whereby the Minister can direct the commission as to what to do.

If that is not enough, the Government, which is really all-controlling in its arrogance, has decided in this part to cross-credit appointments to the Energy Commission with those to the Commerce Commission. In this nation we have had a proud history of having an independent Commerce Commission—the people who looked at the Qantas – Air New Zealand merger and fearlessly recommended that it not go ahead. Even though the Government was desperate for it to happen, the Commerce Commission stood independent of the Government. Through this legislation the Government is deciding that it can appoint someone to the Commerce Commission and the Energy Commission who is the very same person. We will have a person who on one day takes an instruction from the Minister on matters of energy, and then on the next day sits on the Commerce Commission and has to act independently. I do not agree with New Zealand First on the campaign it is running against Powerco, but I say to the New Zealand First members that if the Commerce Commission were to look at the Powerco sale, or at any takeover or merger of any energy company, it would have the same person looking at it who took the instruction as an energy commissioner on how to act. What sort of system is that? In some countries people would call that almost corrupt. It is certainly not free and frank or fearless advice. So it certainly fits with the Government’s modus operandi, which is to have a Minister to control and dictate everything, and, where he cannot do that, to ignore a commission. I think it is murky, political, unhealthy, and wrong—it is plain wrong.

I want to appeal to the Government, because Governments come and go. I know the Minister in the chair does not know much about this bill, but I say to her that long after she is gone the legacy—

💬 Phil Heatley: It won’t be long.

It will not be long, in her case. The Government will leave a Commerce Commission that is no longer made up of wholly independent people. Is that what she wants? Does the Minister have a view on that? Instead of reading papers that are totally unrelated to this matter, I would really like the Minister to take advice from the officials behind her—

💬 Jill Pettis: Go to sleep!

The senior whip for the Labour Party, Jill Pettis, does not care about this. New Zealanders have valued having an independent Commerce Commission.

💬 Jill Pettis: Give Max Bradford a phone call.

The member does not care about New Zealanders having an independent Commerce Commission. Business in New Zealand does care about that; it is about setting standards for business. All I want to say to the member for Wellington Central, who is sitting in the chair, is that she has some of the largest companies in New Zealand in her electorate. Does she believe in having an independent Commerce Commission? If she does, how does she reconcile Part 3 of this bill with that? Will she take a call on that? Will she even engage in eye contact on it, or will she continue to studiously look at the Woman’s Weekly or whatever she is looking at? I think it is appalling that a Minister of the Crown will not engage in that sort of debate. It is something that worried the Commerce Committee, across party grounds. I know that it worries New Zealand First.

I will give the Minister the benefit of the doubt. Perhaps she has not read all the Cabinet papers. Not all Ministers read all the papers; a few try to slide by. I say the Minister should at least take the advice of the officials.

In speaking to Part 3, I want to focus on new section 57GF inserted by clause 32. New Zealand First thinks the bill should strive for three principal aims for the industry—that is, guaranteed security of supply, fair and reasonable prices, and encouragement for investment to ensure ever-increasing capacity. The section deals with the requirement to consult, but New Zealand First says that though there may be all the consultation in the world, this bill will not achieve those three main aims if kept in its entirety. The very foundation of the bill is wrong. In terms of obtaining fair and reasonable prices, we doubt whether it will have the desired effect. I believe that New Zealanders—and this goes to the very heart of the requirement to consult—are sick and tired of political games involving electricity. They are told they will be consulted, and so on, but really they are not consulted.

I have talked to different people in my office in Albany, and in other places I have visited around Rodney and in other places in New Zealand, and the average New Zealander is of the strong view that electricity is not a luxury but an essential service, which should be available at the flick of a switch and at a reasonable price. From what they have seen in the electricity industry over the last 10 to 20 years they think it is a diabolical disgrace, and they feel ripped off in terms of price.

New clause 57GF states that the chairman must make copies of the material available for inspection during working hours for a reasonable period free of charge at the head office of the Electricity Commission; must make copies of the proposed material available for purchase at a reasonable price at the head office of the commission; must make copies of the available material free of charge on an Internet website maintained by, or on behalf of, the commission; and must give notice in the Gazette stating that the proposed material is available for inspection during working hours free of charge, and so on.

My point is that although all of those things may be done, I do not think the bill strives to achieve the three main aims I mentioned earlier. It probably takes guaranteed security of supply one step further, but it will not achieve fair and reasonable prices or encourage investment to ensure ever-increasing capacity for the industry.

At a time when Australian companies are moving more towards coal-fuelled power stations, we should be talking about that issue in terms of our electricity generation problems.

We oppose this bill, of course, because it is another example of the arrogance of this Labour Government with its command and control approach, and its assumption that it is an all-knowing, all-seeing, and all-understanding Government that knows what is best.

Having said that, I suggest that the Minister in the chair, the Hon Marian Hobbs, takes a call. I implore her to take a call, to answer the very serious charge Mr Sowry has put to her and say whether this Government wants an independent Commerce Commission—yes, or no. It is not enough for a Minister to come to this Chamber and just sit in the chair and read comics. The purpose of Parliament is to examine this legislation and to test it, and the reason we have a Minister with a bevy of advisers seated behind her is for the legislation to be explained in order to win support for it. I understand that Marian Hobbs does not know much about anything, but all she need do as Minister is turn around to the advisers behind her and ask what the responses are to Mr Sowry’s questions.

If the Minister is not prepared to do that, or to stand up in this Committee to defend the bill she is responsible for tonight, I do not know how she can take her pay or lie straight in her bed at night. The Minister has a responsibility for this legislation, but Marian Hobbs sits there like a stuffed dummy and does not even engage in the bill. She has not had even one engagement. She may as well not be here. We may as well get a stuffed dummy from Kirks and stick it in the chair. In fact, it might be more useful. Marian Hobbs should take responsibility for this bill, and she should answer the question from Roger Sowry about whether this Government wants an independent Commerce Commission—yes or no. Or she could take a call to explain why Mr Sowry is wrong.

The Minister should turn around; there are one, two, three, four, five advisers—

💬 Jill Pettis: Leave the advisers out of this.

Oh, well, even the wonderful whip from the Labour Party is embarrassed by the Minister in the chair and will not run interference on her. There are five advisers there, doing overtime, who are full of knowledge about the bill. They could talk to the Minister in the chair. They know the answer, I think, to Mr Sowry’s question.

💬 Hon Roger Sowry: I doubt it.

He doubts it. Or is it the case that the officials are not backing this bill, either?

💬 Jill Pettis: How was Spain?

It was great. I tell the member that it is great being back and seeing the most useless Government Minister this country has ever seen in the form of Marian Hobbs sitting in the chair unable to engage, explain, answer, or even lift her head and look up. [Interruption]

David Benson-Pope says that he cannot hear. I am not surprised, given who his benchmate is. If I had that woman screaming in my ears, I would be deaf, too.

But again I make the point—

The CHAIRPERSON (H V Ross Robertson): Would the member address Part 3, please.

Mr Chairperson, it is all very well for you to say that we should narrow the debate, but we are talking precisely about Part 3. [Interruption] It is interesting that everyone in the Labour Party wants to make a comment—except the Minister responsible for the bill. Is that not the case? Every one of them wants to sit and run interference, but I am asking a very simple question. We are working on Part 3. Mr Sowry has put the question to the Minister. Why does that Minister not do her job, or is she incapable of it?

Perhaps I can help Mr Hide with regard to Marion Hobbs’ inability or unwillingness to answer the question. It is simply that she does not understand the question. She was asked whether she believed in an independent Commerce Commission, but she does not understand what an “independent” Commerce Commission means or the significance of that. I could spend the next 4 minutes explaining to her very briefly what the Commerce Commission does, and Marion Hobbs could go away knowledgable about it. However, in 10 months’ time Mark Blumsky might very well be sitting in Marion Hobbs’ seat, so it would be a waste of time telling her, as she sits here reading her New Idea magazine, what the Commerce Commission does.

We in the National Party believe that the Commerce Commission should be independent. My understanding is that the ACT party certainly believes that the commission should be independent. New Zealand First believes that it should be independent, and I think that even the Greens believe that it should be independent and free from ministerial interference. Whether Marion Hobbs believes it, I am afraid that tonight the Committee will never know.

I would like to address another issue to do with ministerial interference, which relates to new section 57DF, “Ministerial powers”, inserted by clause 31. It states that the Minister of Energy may not set objectives and outcomes under the Electricity Act that amount to a direction to the Electricity Commission on matters relating to its jurisdiction. The Minister may not act in a way that gives direction to the Electricity Commission.

However, the Commerce Committee has already received submission after submission expressing concern about ministerial interference. In fact, we had a lovely submission from Simon Carlaw of Business New Zealand, Steve Barrett of Contact Energy, Federated Farmers, the Electricity Networks Association, three State-owned enterprises—Mighty River Power, Genesis Energy, and Meridian Energy—Powerco, TrustPower, and Vector. All of them were concerned about ministerial interference. They stated: “In addition to the competing and irreconcilable objectives, the bill provides for an extraordinarily high level of ministerial intervention. These provisions are incompatible with a regulatory institution, and are in stark contrast to the independent processes which are supposed to be associated with the Commerce Commission.” That was their concern about ministerial intervention and interference.

Do members know what the fallout will be from their concern about ministerial interference? Those companies, when it comes to generation or to investment in lines to transmit electricity, will lower their risk, because they know it is very risky to be in a business that can be interfered with by the political whims of the Beehive. To lower their risk they will do one thing, and one thing only—that is, they will restrict investment. There will not be investment in generation. That is what Genesis Energy says, what Meridian Energy says, and what every other State-owned enterprise says that this Government has its fingers on. Those companies will not be investing in generation, lines companies will not invest in upgrading lines, and retail companies will not invest in services to their customers, simply because by investing they expand their risk. They do not want to expand their risk in situations where the Minister can interfere with their businesses.

It is some time since this bill was last debated in Parliament, and I have to say that I am a little bit rusty, particularly on Part 3. But I listened with interest to the Hon Roger Sowry, because he has been making some quite relevant and pertinent points in the debate on the whole legislation. I know he has taken the issue very, very seriously. I hope I have not misunderstood him, but he seemed to imply, at least to me, that the Genesis gas-fired plant being proposed at Huntly should have gone through the process of consultation with the Electricity Commission or the Commerce Commission.

💬 Hon Roger Sowry: Yes—the Electricity Commission.

I thought that was what he was driving at. I have to say that New Zealand First does not agree with that. I might be wrong, and I have looked desperately through this part to try to find—

💬 Hon Roger Sowry: The Government guarantee.

Ah! Well, maybe I can comment on our view of the Government guarantee in terms of the Huntly power station. My understanding is that the Government has guaranteed that if there is not gas available after the year 2012 for that power station, then it will pay Genesis some compensation.

💬 Hon Roger Sowry: How much?

I do not know.

💬 Hon Roger Sowry: It’s your money and my money.

Indeed, but I suggest to the honourable member that if we do not have any gas by the year 2012 to supply Genesis in order to produce electricity, then we might have much bigger problems to worry about than whether Genesis gets any compensation or at what level the compensation is.

New Zealand First welcomes the building of that power station by Genesis. I understand it is going to be on line by 2007, and it will add something like 362 megawatts to the grid. I see the officials nodding, so I have got it right—and that is all from memory! We are very pleased. We think that it is an initiative this country can do with, and that we should be applauding Genesis for its move, rather than criticising it. But I am glad the Hon Roger Sowry has clarified the point he was making.

We want an independent Commerce Commission and, as far as we can have it, an independent Electricity Commission. We do not see that that raises the concerns that Rodney Hide mentioned, in terms of stifling that independence.

I am looking now at new section 57DD, “Procedure before jurisdiction order can be made”, inserted by clause 31. It refers to the transfer of jurisdiction in respect of Transpower or other electricity lines businesses. It states that the Minister has to consult with representatives of industry participants and representatives of consumers. We think that is fairly reasonable; we do not see anything harsh in that. The clause goes on to state that the minister has to consult with the Electricity Commission and the Commerce Commission and to seek a recommendation from them. We believe that that is reasonable. We think that the Minister should be obliged to get a recommendation from the Electricity Commission before he or she does anything with Transpower lines or with any other large electricity lines businesses.

Perhaps Government members, or even the Minister, can take a call and tell us where there is a possible threat to the independence of the Commerce Commission, because on looking through this part I cannot find any. I cannot recall, before the recent adjournment break, being aware that there was a threat to its independence, and I cannot find it readily now. If it is there it is a major concern, but I am not aware of where it is.

In fact, the more I read this part, the more likely I think it is that New Zealand First might be able to support it, even if we cannot support anything else. I cannot see a threat to the independence of the Commerce Commission, and I cannot readily see a threat to the independence of the Electricity Commission. Maybe the Minister can advise me whether I am right or wrong, whether Mr Hide is right or wrong or, indeed, whether the position is somewhere midway. It seems to me that the clauses in this part are right and proper, and they outline the authority that the Minister has.

Can I just take up the point that was reasonably and rationally raised by the last speaker, on the question of the independence of the Commerce Commission. The chair of the Electricity Commission is an associate member of the Commerce Commission only in respect of Part 4A matters, which relate to price control under the Commerce Act. The Minister cannot give directions on Part 4A, either to the Commerce Commission or to the Electricity Commission. So when the chair of the Electricity Commission is sitting on the Commerce Commission for Part 4A matters, he or she as a member of the Commerce Commission is not subject to direction, and is therefore independent.

I thank the Minister for that, and now I want her to answer the other part of the question, because what the officials have told her is what we already know. We heard through the Commerce Committee that the chair of the Electricity Commission is a member of the Commerce Commission, and it concerns only Part 4A. The Commerce Commission appeared before the select committee and made plain to the committee the Government’s view that the cross-accreditation of appointments allows the appointment of an electricity commissioner who is also a commerce commissioner.

The Government actually has its eye on one of those people. The Hon David Caygill is the name that springs to mind, and he is deputy chairman of the Commerce Commission. I want to say to the Minister that I do not in any way want to bring David Caygill into the debate in terms of his skills and attributes because I have a great deal of respect for him. However, the principle is one of an appointment—[Interruption] The member should take the issue seriously, because it is actually an issue that I know he takes seriously. The issue is one of—[Interruption] The member would not even pretend to understand the issue. The issue is one of an appointment between the Commerce Commission and the Electricity Commission. I want to say to Mr Peter Brown that if the Government intends to appoint—it is not in the bill or in this part, but this part implements it—the same person to the Commerce Commission and the Electricity Commission, then the Minister directs the Electricity Commission, as he is entitled to under this part, and the Electricity Commission, for example, under new section 57CA(3), inserted by clause 30B, states that it wants the Commerce Commission to consider this, we then have the same Commerce Commission person also appointed to the Electricity Commission, and there is therefore a conflict of interest.

This issue has been raised by people, it is an issue that is outside just the chair—and I am looking to the officials here for advice to the Minister—and it relates to commerce commissioners also appointed to be electricity and gas industry commissioners. I think the law is murky on that. I understand that the Government wants to appoint people to both jobs. It wants someone to sit on the Commerce Commission and also on the Electricity Commission. I think that is political, I think it is unhealthy, and I think it is wrong. I really worry about it.

Mr Benson-Pope might not worry about it, but I wish that the member—and I thank the Minister for her call—had time for the officials to see her. They are writing something for the Minister now, and I know she cannot see because they are behind her. I just hope that the advice we get is that the Government is not allowed to appoint someone to both bodies. At the moment, my understanding of this part is that the Government is allowed to do it. The talk around town is that the Government will do it, and that talk is quite person specific. I think that is wrong. I think, quite frankly, that it exposes a Minister, and it exposes the independence of the Commerce Commission. I heard someone from the other side say: “Oh well they can just opt out.” The Commerce Commission in this country has a history of fierce independence and I am worried that the Government is undermining that.

I move, That the question be now put.

Part 4 of the Electricity and Gas Industries Bill is a large part, and substantial because it includes new Part 4A as well—or are we just debating Part 4, Mr Chairperson?

The CHAIRPERSON (H V Ross Robertson): I called clauses 40 to 45.

That is fine, because Part 4A is substantial, and we will come to that soon. Part 4 in the first part of this bill really relates to the introduction of gas amendments into the legislation, where the Government decided—

The CHAIRPERSON (H V Ross Robertson): I am sorry to interrupt the member, but I tell him that Part 4A is included in clause 45. It is inserted by that clause. So now the member will be aware of that.

I will start again; I thought I was getting an extra part to debate. Part 4 is a large part, and of course includes all of Part 4A. It is a huge part of the bill, and it is worrying because it will stop infrastructure development in this country for the gas industry. I will be particularly interested to see where United Future will go on this one—I know where ACT and, I think, New Zealand First will go—because this part has been totally opposed by the industry players.

This bill proposes a mechanism by which the Minister can nationalise gas facilities. If members look at new section 43C(2), inserted by clause 45, relating to “Wholesale gas market” and “Processing facilities”, they will see that those provisions allow a Minister to regulate when gas is found—say, if one of the new rigs finds gas—and where the finder wants to bring it on shore but does not have a processing facility to enable the gas to be processed. The finder can go along to the existing processing facility and say: “We require you to give us space to process our gas”. Effectively, we will nationalise that facility so that we can use it to process our gas.

Now, what does that mean? Well, the Government says that that means the gas gets processed, but the industry says it means that it will not drill here. A large company like OMV New Zealand will go back to Brussels and say it wants to bring a rig down to drill off the Taranaki coast to find gas. But then it will say: “Gosh! If we find some and build a processing facility, some other company can come along and just demand, and have the Minister give access to that facility to our competitor.” So why would a company invest? Why would it build a new facility in New Zealand if that were the case? Why would it do that? I hope the Minister will take a call and explain that.

I raise a point of order, Mr Chairperson. I understand, in fact I see, that the Minister, the Hon Pete Hodgson, is now in the Chamber. My understanding, unless there has been a new Standing Order, is that if the Minister is in the Committee, he is required to take the chair.

The CHAIRPERSON (H V Ross Robertson): The Minister is quite prepared to take the chair.

It is good to have the Minister in the chair. I hope he will explain to us how he will alleviate the concern the industry has around the potential nationalisation that is provided for in this clause in this part. I say to the Minister that the industry players who have come to see me—and there have been a large number of them—have all said the same thing: they could not convince their parent companies, who without exception of course are foreign companies, to invest in New Zealand because of this part. Not one of them has said that it would invest—because of this part. I know it suits the Greens not to have any investment here, but I think the Minister is being quite genuine—in fact, very genuine, to be blunt—in his desire to see more gas discovered here, because the biggest problem we have at the moment is the lack of gas. If people are not prepared to drill—because they are scared they might find something, and then if they find something they might have to go back and try to invest in a processing plant, and then they know they would never get approval because of the potential nationalisation of that plant—then we are not going to make any progress with drilling, notwithstanding the fact that we have a couple of rigs out there at the moment. They are watching this legislation and this part very, very carefully.

I say to the Minister that I think this part should be withdrawn. I think that he has a threat in it that is overcooked. He does not need it at the moment. The industry is functioning without it, and my appeal to the Minister is not to proceed with Part 4A but to treat it—[Interruption] I wish the junior Government whip would just try to contain himself for a moment. My appeal to the Minister, which really comes after talking with the industry, is that if he feels he needs Part 4A as the stick, in a carrot and stick approach, he should recognise that he has showed his hand, and he should put the part in a black box and keep it. He should tell the industry to get on with it, that we expect reasonable access, and that there is a threat of regulation. He has used that before for the electricity industry, and my appeal, I guess, is for him to do the same with gas. He should not legislate for it now, because my worry is that it will turn investment off.

I noticed, and I am sure the Minister will have taken a bit of heart today from, the announcement about the progress on access to the pipeline. He nods, and he has good reason to take heart from that. He probably has good reason to say that it got that far because he has been out there with a big stick. But all I am saying to the Minister is that I think he should step back from Part 4A, and that he should not pass it. He should just say to the industry that it is there. We have had a Gas Industry Steering Group that has gone away and looked at that part. The Minister put Mr Bolger in charge of that group as, I think, a clever political move, and nothing other than that. It does not have the approval of the industry, and industry groups have said to me that they do not agree with those provisions, at all. They have said that both as a collective voice and as individual companies. I tell the Minister that they do not agree with that part.

So my appeal to him is that he should not just listen to Mr Bolger and Mr Roche, who have been paid to give the Minister the advice he wants, but he should listen to industry representatives themselves. They are saying they can see what the Minister is proposing, but they do not like it and do not want it. They want the Minister to let them get on with it, and do their own thing. I think that that is the right way to go. So I hope the Minister will take a call. In fact, I am sure he will, because he did on earlier parts. I hope that he will consider freezing—stalling, whatever—Part 4A in particular, and holding it, and let us just see whether the industry can sort itself out. I have confidence in their being able to do that, but I think that if he proceeds with this part, the only effect it will have is that companies we want to come down here and prospect, will not. They will know that if they find something, they will not be able to get the approvals they need to build the processing facilities, because any processing facility, effectively, can be nationalised at whim by a Minister. That is bad legislation for this country.

The speaker who has just resumed his seat may not be as fully aware of the detail of the proposed legislation in this regard as he might be. It is very similar to a transmission pipeline, which he spoke of when he said that I should be pleased about the progress of open access to the Māui Gas pipeline.

All members in this Parliament would find it repugnant if, for some reason or other, a person who owned a pipeline—if that pipeline had spare capacity—could somehow stop someone else from using it in order to gain some competitive advantage at the other end. We would all find that to be anti-competitive and the inappropriate use of a monopoly power.

A similar analysis can be applied to gas processing facilities. Gas processing facilities are often big, but gasfields in this country may in the future—we do not know—be often, or usually, small. So it is well within the bounds of possibility that one, two, or three gasfields with different owners may want to use the same gas processing facility, and that that gas processing facility might have spare capacity.

In the ordinary course of events, people would use it through a commercial contract; that is what people do. In the normal course of events, that is how the Māui pipeline would work, too. The company would ring up, just like a trucking company, and ask: “Have you got spare capacity? Well, we want to use you.” But because there could be monopolistic behaviour there, backstop regulation is proposed.

Let me tell members the conditions. The regulation-making power is permissive. It can be used only if a need is demonstrated. The fact that the regulation-making power exists, of course, is an incentive for people to behave reasonably—the member who resumed his seat acknowledged that—but really interestingly, the regulation can be made by me only if it is recommended to me by the industry. It can be made by me only if the industry as a whole says: “This ain’t working.” Those are the only circumstances under which I may make the regulation, and then I have to use reasonable terms and conditions, and also be personally satisfied that spare capacity is available and non-competitive practices are afoot. That, surely, is reasonable.

I am afraid that the Minister’s explanation goes no way to satisfying the ACT party. I ask him to consider these questions: how is gas found, how is gas lifted out of the ground, how is gas lifted from the ground to where it can be processed, and how is gas processed?

I can enlighten the Minister. This is the answer: it is by investment, and by heavy, heavy investment. When investors invest their money—I know that this is not something the Labour Government is aware of—they are looking for a return. This is an industry that is fraught with risk, but this Government with this bill is introducing a phenomenal risk.

Let members read in section 43C, inserted by clause 45, what can happen. Investors can invest in a pipeline or a processing plant, and the Government can come along and take it off them. There is no other way of putting it. The Government can come along, through an Order in Council, and set reasonable terms and conditions for access to processing facilities and to the transmission and distribution of gas.

I have a simple question for the Minister: whose pipeline or processing facility is it? It belongs to the people who own it. The Minister stood up in this Committee, waved his arms, and said: “Oh no, we would only pinch it if the rest of the industry thought it was a good idea.” It is as if the Minister is in his house—I will put it into something that maybe a Labour Government Minister can understand—and the Government decides he has a spare bedroom and sets the rules by which someone can come and occupy it. Then the Government says that it is excess capacity, so there is a spare bedroom and to make it available. But the Government says “Oh, no, no. We won’t do that—it will require everyone in the street to agree.”

Somehow, this Minister of Energy thinks that that is OK. Well, we have had plenty of experience down through the ages, across a whole lot of countries, of what happens when people do that. It crashes investment. I just wish that the Minister in the chair, Pete Hodgson, understood the significance of the Berlin Wall coming down in 1989, and of communism collapsing under its own weight of poor incentive and failure to understand the significance of property rights.

If the Minister wants to have good investment in gas exploration, and in the gas processing and distribution industry, the very best thing that he could do is to protect property rights—not pinch them, as he proposes to do in Part 4A. I implore the Minister not to be blinded by ideology or the politics of this, or by the idea that a bunch of civil servants sitting around can somehow come along and reshape an industry into a better outcome.

I look to United Future. I do not believe that those members are stupid enough to think that Part 4A will increase investment in gas exploration and distribution. I know about the Greens. They will vote for this because they do not want gas processed, found, dug up, and distributed; they want it just left in the ground. I can understand that. I look across to New Zealand First and I say to its members: “Ask yourself. If you were an investor in anything and this rule applied—whether to your car, house, place of work, or business—would you invest under these rules?”. They might, if there were a big enough return, but they would be less likely to—and that is the trouble with this bill and this Government.

I would like to continue the discussion on new section 43C(2)(b), inserted by clause 45, concerning gas processing facilities. I am also aware that members of the Petroleum Exploration Association of New Zealand have been to see me, as I am sure they have been to see Rodney Hide and Roger Sowry, on this matter, to say that they are opposed to this particular provision in the bill. I must say that my first reaction to them when they came was I thought that, yes, they had a fair point. I say that because United Future is a free-market party, and we believe in the creation of free markets.

💬 Hon Member: You’re voting for it.

I will tell that member, if he will just hang on a minute, why that does not apply in this situation. The first thing that I have to ask myself is what the big picture really is here. The big picture was well explained by both Roger Sowry and Rodney Hide, and it is that we do want to encourage exploration. But one could look at it from this point of view: if one does not happen to be the owner of an existing gas processing facility—and most of the explorers that have rigs here at the moment do not own gas processing facilities—then, indeed, new section 43C(2) works in one’s favour. One has the assurance that if gas is found and there is spare capacity—look at the wording of subsection (b), because none of those members have mentioned it—then there are conditions on it where that is (i) “reasonably necessary to allow new fields to be developed”—so the emphasis is on the development of new fields—“and (ii) spare capacity is available”.

I worked in the oil industry for 14 years of my life, and I can tell members that I fully understand free-market economics. Of course, if one has sunk capital into a gas processing facility and one has spare capacity, then in the normal course of events, one will make some money by selling that spare capacity to someone who will use it and that gives a return on the investment.

That is the way markets work, except that we have to analyse what kind of market we have here. Is it a free market? Is it a monopoly market? Those are two possibilities, but actually there is a third possibility—an oligopoly. Let me tell those members who may not have studied market economics what an oligopoly is. It is a market situation in which control over the supply of a commodity—in this case, gas—is held by a small number of companies. That is exactly the situation that applies to gas processing facilities in this country at the moment. We have an oligopoly, and the danger in that situation is, as the Minister explained, that simply to keep a competitor out one can say: “No, I am sorry, I have spare capacity but I own this plant and you are coming nowhere near it.” Believe me, that happens in this kind of situation.

Is that in the interests of New Zealanders? Let us look at the big picture. We want gas to be discovered. We want to encourage, not discourage, exploration. If gas is discovered, we want it processed in the most efficient manner so that we can deliver the best price to the ultimate consumers, who are the people of this country. That is my reasoning and analysis of the situation we have, and that is why I support new section 43C.

💬 Rodney Hide: Pretty poor.

That is Mr Hide’s view, but he can take another call to try to argue otherwise. That is what good, vigorous debate is all about. I am just giving my point of view at this point in time.

The other thing, which I do not think Roger Sowry or Mr Hide mentioned, is that, as the Minister explained, we are talking about a co-regulatory model.

💬 Rodney Hide: What model?

A co-regulatory model. That means that the Minister, as he said, will not intervene unless a person, having discovered gas, comes to him or to the industry and says: “Hey, so and so has a gas processing facility that is only 25 percent used and he will not let me use it.” In that situation—

💬 Rodney Hide: It’s called communism.

No, it is not called communism. It is called sensible economics, aimed at delivering to the consumer gas at the cheapest price in the most efficient manner. It is all part of the deal. If the member is so purist that he has never heard of oligopoly situations, then he can just be enlightened tonight that they do exist. [Interruption] If the member wants to pronounce it the other way, as some people do, he can say oligopoly. Either pronunciation is quite fine.

💬 Rodney Hide: How do you spell it?

Oligopoly. I will take Mr Hide to “Economics of Markets 101” some time and explain it all to him if he likes. This is the way it works, and that is my view.

I thought that clear-thinking people could not possibly stand up and defend this clause, but after listening to the United Future member, I have to say that I think anything is possible.

💬 Rodney Hide: It wasn’t clear thinking.

I stand corrected—the member was not a clear thinker, and he has just confirmed that. I knew the Green members would support this legislation, because they are the people who dumped on Dobson, even though they said they wanted regional development across this country. But for a United Future member to stand up and try to defend Part 4, and this clause in particular, is, I think, beyond reason.

Let us talk about what is being suggested here. The Minister of Energy, Pete Hodgson, took a call and said that if organisations invest hundreds of millions of dollars in finding gas, and if they put up the risk capital to do that, then he expects others will have the right, through him, to annex that part of their operation in the public interest. The annexing of private property is a theme that is running through the current Government at the moment in a way that should alarm people. I was with a senior Minister of the Crown in Timaru last week, and at a public meeting he said that annexing a private property in the public interest can be justified. Here we have another example of that.

The Minister said these organisations may cooperate. Of course, they may cooperate—that is what commercial practice is all about. If one wants something that the other guy wants, then one forms a contract and does it. The Minister went on to say that if they could not form a contract, then he, as the Minister, would decide. I ask any clear-thinking person in this Chamber—and that now excludes the United Future and Green members—why organisations would invest hundreds of millions of dollars in finding gas, put in place the infrastructure to process that gas, and then run the risk of the Crown coming along and annexing that. Will that drive foreign capital into this country? I see that the United Future member’s head is down now. Will that drive foreign capital into this country? Will that drive exploration of the gas industry in this country? The answer is clearly no. That is why the United Future member cannot answer—he knows I am right.

I ask members to listen to what is being proposed. I turn to clause 45, which inserts new section 43P(1)(a), which states: “the facilitation and promotion of the ongoing supply of gas to meet New Zealand’s energy needs, by providing access to essential infrastructure and competitive market arrangements:”. That all sounds good until the Minister stands up and says that what he actually means by that is that the Government will hold a gun to the head of Shell, or whatever other organisation has run the risk, and say: “You must share these facilities, otherwise the State will move in and take them.” That is the worst type of centralised model I can think of. That is the type of thing that was happening in the Eastern bloc in the 1960s and 1970s, and that is the best idea this Minister can come up with to correct the problem in this country—which is a power crisis, not an energy crisis.

We have lots of energy in this country, if we are prepared to harness it. But we cannot harness it because this Minister, through this Government, keeps putting blockages in place. This clause is just another classic example of that. I know that it concerns Mr Brown, because he said so at the Commerce Committee. I am sure he will take a call, have the courage of his convictions right here and now, and say that he said so at the select committee, that he is still opposed to the clause, and that his party cannot support this component. United Future is having its report card marked over this issue, as well. Clear-thinking people who have supported that party as a free-market policy party cannot believe what they are hearing now. That party is saying that it believes the State can annex private property in what it considers to be the public good. If that is not an attack on private property rights, I do not know what is.

My honourable colleague behind me, Brian Connell, has compelled me to get up to offer New Zealand First’s viewpoint. I have to say to my friend that I cannot recall making that statement at the Commerce Committee, but I can tell members that New Zealand First has anguished over this part. We have genuine concerns.

I have listened intently to all the speakers, particularly the Minister, Pete Hodgson—and, I have to say, Gordon Copeland. I thought he put his viewpoint very, very well, and New Zealand First is tending towards sharing that view. When I listened to my colleague behind me, I began to get the impression that every trucking company in this country would have its own road—that is what it sounded like to me—unless the Government were to intervene and tell companies that they could not have all those roads, and that they had to share them and make best use of them. It is the same with—

💬 Brian Connell: With a private road you wouldn’t expect that, would you?

With a private road one might, but the Government would step in and say that there are not going to be 10 private roads.

💬 Brian Connell: This is not Government money we are talking about.

We might well not be, and that is a very valid point, but we must remember that at the end of the day we want to get gas into the market at the cheapest possible price. If it is reasonable to share a processing facility, a pipeline, or whatever, and it can reduce the price of gas, then that is a reasonable way to do it. I do not profess to be a free marketeer, as Gordon Copeland said he was. I know I am digressing a bit, Mr Chairman, but I cannot resist. I cannot understand how Gordon Copeland, as a free marketeer, would limit the lines companies to just 50 megawatts. People like me, who do not profess to being a free-marketeer, would give the lines companies a greater flexibility to invest—

💬 Brian Connell: We agree on something.

We do agree on something. It is quite amazing. I just cannot make out how Gordon Copeland can say he is a free marketeer. Maybe he is a free marketeer on Tuesdays—

💬 Brian Connell: A free-market socialist!

Yes, a free-market socialist, and then something different on Wednesdays. New Zealand First has listened intently to the explanations given, and we are persuaded by the Minister’s viewpoint and by United Future’s viewpoint. In the short calls that those members have taken, a number of concerns that New Zealand First has had about this part have been answered. We believe that there needs to be some regulation and some rules that are fair, objective, and can deliver gas at a reasonable price. We think this will do it. We will support this part.

I also rise to talk about this issue of investment, or lack of it. There is no lack of disincentive for investment. There is no lack of risk for investment. But there is a lack of investment—whether it is investment in the wholesale gas market, exploration, processing facilities, or in the transmission and distribution of gas. In all of those cases there is a degree of risk, and that risk is reflected in the lack of investment. We in the National Party can say only that the risk goes up when the Minister gets his dirty fingers involved in the deal. That is what this clause is about—the Minister getting his dirty fingers involved in the deal.

Clause 43C in Part 4A is headed “Gas governance regulations for wholesale market, processing facilities, transmission, and distribution of gas”. It states that the Governor-General, by recommendation of the Minister, can make regulations for all or any purposes. That is, of course, along with the industry. But our question is: who in the industry makes these recommendations to the Minister? Which side of the industry, when it is in disagreement, gives the Minister a mandate to make these regulations? The idea that in some way this is market-led or industry-led is quite absurd because the Minister, first of all, has to either get 100 percent of industry participants backing him in his views, or he has to pick winners in the industry that he will get to back his views.

Looking at the wholesale gas market, I am intrigued that the Minister can provide for the “establishment and operation of wholesale markets for gas” including, and this is through regulation, providing and forcing the “disclosure of data and other market information”. Who would want to come to New Zealand, or arise out of New Zealand, and make multimillion-dollar investments when this Minister can make provision for the disclosure of data and other market information? We understand through the electricity markets that it is quite important to disclose some significant information in order to run those markets correctly, so that there is the correct bidding of price into the market. But for it to be as broad as any “other market information”, and that is stated in clause 43C(2)(a)(iii), is too much discretion for the Minister who is enforcing the divulgence of sensitive commercial information. If businesses are forced to divulge sensitive commercial information, they will not want to take that risk and therefore they will not invest. That is our message to the Government.

Another subclause concerns “arrangements relating to outages and other security of supply contingencies”. I am concerned the Minister believes that the bureaucracy can decide on arrangements relating to outages and security of supply better than the industry can. I would have thought that the bureaucrats would struggle compared with the industry, and I cannot see how the Minister would expect them to do better than that.

In terms of processing facilities, the Minister, apparently being industry-led, can make regulations relating to the setting of “reasonable terms and conditions for access to, and use of, gas processing facilities”. We have heard a number of speakers talk about that. Why would overseas investors come to this country, spend millions of dollars on exploration, gathering gas, and processing gas to compete with others in the market, only to be told that they have to open up their processing facilities to competitors?

💬 Brian Connell: They won’t.

They will not do it. There will not be any investment, because this implies an increase, again, of risk. It is the most serious form of risk when competitors can walk into a processing company’s property and use the facilities to produce a product against that processor’s products in the marketplace. That seems quite absurd to us.

There is an argument to say that spare capacity should be available, or could be made available, only if the person accessing or using the facilities paid reasonable costs of providing the additional capacity. But who is to say that there is spare capacity? If one disgruntled gas wholesaler, or an exploration company, wanted processing to take place, it could very well claim that there was spare processing capacity. Where is the burden of proof—on the processor that owns the company to prove that there is no capacity, or on the disgruntled supplier to say that there is capacity? All we know is that it would be a long-winded process costing many resources and much time.

I ask the Minister where the burden of proof would be as to whether there was spare capacity available, or spare capacity that could be made available. I ask the Minister to take a call and answer that question.

Further to that, that spare capacity, or the potential of spare capacity, will change over time. Has the Minister decided whether that could change over a matter of days? Could spare available capacity change over a matter of weeks, or months, or will we forecast this for years ahead? What certainty is there for a processor that has to forgo the use of its own facilities for a competitor into the future? There may very well be spare capacity at one point in time, but only weeks or months later there is not. A processor will have to shift its whole processing regime, which is set up for a competitor, back to a regime that is set up for itself. Again, that takes resources, time, and money, as well as expertise.

There are lots of questions around this whole idea of regulating that a competitor could walk into one’s facility and use that equipment to compete against one. None of those questions have been answered. I ask that the Minister be courageous enough to take a call and answer those questions, and the one in particular to do with the burden of proof as to whether there is spare capacity available, or not. I want to know who does that.

I also notice the issue regarding the transmission and distribution of gas through the pipelines. I note in clause 43C(2)(d) that there is a requirement for “expansions, upgrades, or service quality improvements” that will have to be undertaken through regulation at the whim of the Minister, and companies will have to pay for it. That is far too much interference, in my view.

I move, That the question be now put.

I would like to go back to what the Minister Pete Hodgson said about spare capacity. He said that gas-processing facilities are the same as the Māui pipeline; that if there is spare capacity, rather than a commercial contract being entered into, it would be better if the Government saw a demonstrated need, that it had regulation-making powers to actually demand that the industry share that capacity. He said that it had to be recommended by the industry. Well, I would like to know from the Minister how he can make that assumption of who the industry is. How many players does that involve? Because in the commentary on the Electricity and Gas Industries Bill that we are debating tonight it states: “The co-regulation model has been developed as a result of a consensus view in the gas sector that: the gas industry could not achieve voluntary self-governance . . .”. Well, we have heard tonight from many people in this Committee that the industry does not agree with that. There are many players outside who believe that they would prefer to be self-governing rather than having this co-regulation model. So I would like to know how the Minister can say that it has to be recommended by the industry. How will he know that?

This to me sounds like a really good example of the nanny State, it really does: “Nanny, he won’t let me play in the sand pit. I can’t get in there.” So the Government, being nanny, is going to come in and enforce that, rather than let the industry take over. What do New Zealanders who may be listening to this debate want? They want to be able to switch on the lights, turn on the oven, or turn on the heat, and have surety of supply.

This is 2004, and we have 4 million people in this country. How hard can it be? We have this huge bill, and a Government that, for years and years, has been promising these types of improvements, but we have not seen it. We just have not seen the improvements. Despite the rhetoric and despite all the promises we have not seen it. Here we have Part 4A, which many industry players are opposing, where the Minister can play at being nanny State and nationalise gas processing and make a private company share spare capacity. Well, I cannot see that that will not be a disincentive to investment. In Marlborough at the moment we have a huge shortage of accommodation for our vineyard workers.

💬 Darren Hughes: Bring back Mr Burns.

No, Mr Burns has not sorted anything out. The fact is that this is like this Government coming along and saying: “OK, you’ve got a big house, you’ve got lots of rooms, we’re going to regulate and make you share your accommodation with these vineyard workers whom we need. Because, you know, there’s a need. The country needs these people to have accommodation. We need our vines to be picked, and we need the experts.” We had the Marlborough wine people here today at Parliament. We have a wonderful number of vineyards in Marlborough and a fantastic product, and this is exactly the same. One could say, “OK, this is really important for the country so we’re going to insist that people actually share their houses and use their spare-capacity bedrooms to house these workers.”

I do not think many people would put up with that. I do not think the Minister would share his house, but here we have it with the gas industry. The Minister is saying that if one has some spare capacity the industry can make a private company share that spare capacity. Well, a lot of people out there do not want to see this go ahead. Many do not agree with that, and they do not agree with the co-regulation model that has been developed.

The commentary goes on to state: “the proposed regulatory model in the bill was heavily influenced by electricity industry concerns and might impose rules that may be inappropriate for the gas industry”. So it is saying that the electricity industry and the gas industry have some conflicts and “co-regulation would share responsibility between Government and industry”. Well, many in the industry do feel that they can regulate their own industry, and do not need this Government’s interference. So we will see that this bill will put off overseas investment. United Future members were talking before about being a free-market party, but—

I move, That the question be now put.

I want to thank the Minister for his comments and for responding to our concerns. I tell him that I understand his concerns about monopolistic behaviour. I understand the need to make sure that where there is someone with a monopoly he or she is not unfettered in the way that he or she could use those monopolistic powers. The point I would make to the Minister is twofold. Firstly, before the Minister comes into the House with legislation as draconian as this, he should let the market sort it out, and we are seeing that with the gas pipeline. The second point I would make to the Minister, which he did not notably address, I thought, was that the companies that have come to me, and I am sure to him, or at least to his officials—but the Minister does seem to engage with companies quite a bit—could not convince their parent companies to invest in New Zealand, because of this law.

Now that is the real worry—that companies cannot go back to their parent company and say “Let’s drill, and if we find something, let’s invest in the processing plant.” Because why would anyone sitting halfway around the world with a range of options as to where to invest money for a processing plant, invest it in the one place that has on the books a law that says one’s competitors can have access to that plant at the Minister’s discretion? The Minister says that it is important to remember that he would act only on advice.

💬 Brian Connell: Who’s advice?

He says the industry’s advice. But if someone is sitting around the world and some hitherto unknown Minister is going to act on a competitor’s advice to give that competitor access to a facility, I tell the Minister that it does not make sense. The companies know that it does not make sense and they are saying with one voice that they do not want this. With one voice they are saying: “This will stop investment.” I again appeal to the Minister to withdraw this clause. If he will not withdraw the part, I ask that he at least withdraw the clause that nationalises the industry.

I predict that if the Minister passes this, we will, in the event of trying to get companies to invest in this country, be back repealing that part of the bill. The Minister is saying that there is now understanding within the industry and that they can do it, and they will negotiate the process. I believe that that is what will happen, and the Minister should back down now rather than proceed with this.

I give the Minister another option. He could tell the House the name of one company that supports this part of the bill. I ask him to name one exploration company—one company that is likely to put up the money for the facilities—that agrees with this, and he will not. There is one other option, of course, and that is that a company will drill, find the gas, and make a decision not to invest. So, after finding the gas, it will make a decision not to invest in the processing facility because that is going to be nationalised. So who will build the processing facility? The Crown. Maybe that is what the Minister wants. Maybe the Minister is saying that that is OK, and maybe the commission will say: “We’ve got these gas finds and the large companies will not invest in the processing facility, because of the nationalisation clause, so the Crown should do it.”

I move, That the question be now put.

I raise a point of order, Mr Chairman. I want some clarification. There were two lots of amendments from the Minister. There was one set of amendments on Supplementary Order Paper 243, and other amendments on the sheet I have in front of me. I am looking for clarification as to whether we were voting on both lots of amendments, or just on the ones that you read out, as being the amendments that we were voting on. I seek your guidance and clarification on this matter.

I thank the member for raising that. The member is quite right. There are two sets of amendments, and that is what the typescript amendments refer to. There are the amendments set out on Supplementary Order Paper 243, and the typescript amendments.

💬 Lindsay Tisch: That is what you refer to as the typescript amendments?

Yes, they have been aggregated, as is normal. I thank the member for raising that. The amendments were agreed to.