Electricity Industry Bill

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

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

The CHAIRPERSON (Lindsay Tisch): We are on Part 3.

I am just responding to some of the arguments—

The CHAIRPERSON (Lindsay Tisch): No, we are on Part 3.

I am sorry, Mr Chairperson. I will continue. This bill is about security of supply. It is about affordability and sustainability, which is what Mr Hipkins has already referred to.

💬 Hon Members: What does Part 3 do?

Part 3 is right here. It is about the separation of distribution from generation and retailing. But I digress. If people think it is just National that is in favour of this reform, I tell them that it is not. I quote from a Press editorial: “Changes made by Labour”—

The CHAIRPERSON (Lindsay Tisch): I am sorry to interrupt the honourable member, but the time has come for me to leave the Chair.

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

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

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

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

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

💬 Hon John Carter: Have faith.

That is what Max Bradford said, I say to John Carter. Max Bradford said: “Have faith. I know what I’m doing. It’s all going to be all right. We’re going to have lower power prices.” And what happened? Power prices went up exponentially because of what Max Bradford did. He divided a monopoly. He tried to create a market where there is really a monopoly. It is very difficult to do. There can be only one set of lines, and there will be only one transmission grid. Max Bradford, as John Carter just said, told us that we all had to have faith in the market, and the market would deliver lower power prices. It did not do that.

The question becomes: what do we do about lines companies at the moment? Do we allow them back into retailing? What other commercial opportunities are there for lines companies? Lines companies could be focused, first of all, on making sure their infrastructure is up to date, making sure they are replacing the power lines, and so on. A good comparison is with the rail industry. We sold off the rail network in 1993, under the then National Government, and during that time the overhead power cables that power the rail network were not maintained at all. In the Wellington region, by the time the Government bought back the rail tracks, in 2003, the power network supplying electricity to the trains was so badly run down that in the last few years it has effectively had to be completely replaced. Why do the lines companies not focus on doing that, on making sure that they are providing a network that will deliver security of supply to households in the future?

We have seen examples where things have gone wrong. It took a failed D-shackle to wipe out the power supply to a large chunk of Auckland for several days. Clearly, maintaining the lines is what the lines companies should be focused on. They should be focused on making sure that when people go home, turn on their light switch, and put a pot on the stove, the power will be there—that they will be able to do those things. Electricity is so fundamental now to what we do on a daily basis.

There are other commercial opportunities for lines companies if they want to look at expanding their businesses into other areas. There is the opportunity for lines companies, for example, to get involved in telecommunications, particularly in broadband. There must be opportunities there, if they want to get involved in broadband. I know the Government has stalled with where it is going with broadband at the moment. We are not making anywhere near the progress that is being made in Australia, when it comes to broadband, but that is because Australia has a Labor Government and we have a National Government.

There are plenty of other opportunities for lines companies, in terms of where they could diversify their businesses if they want. I am not convinced that allowing them to move into the retail market will increase competition. In fact, as I said before, allowing lines companies into the retail industry could put off other providers from entering into that market.

To recap, this bill repeals part of Max Bradford’s ideological separation of the generators, the lines companies, and the retailers. It allows the lines companies to enter into retailing under certain conditions. There will be restrictions on the amount of electricity they can supply, and so forth. Overall, however, I am not convinced that it will make much of a difference. Thank you.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

💬 Hon Nanaia Mahuta: How much?

$1,000 a month. That is unbelievable and totally unsustainable. Any form of competition that would reduce power bills of that level—in fact power bills of any level—is something I am all for. Let members make no bones about that. The Labour Party is all for competition in the areas that open up markets and reduce costs to ordinary, hard-working consumers. But I do have one concern about this. I wonder whether the Electricity Industry Bill will actually allow that. I note that the ministerial review concluded that lines businesses should be able to retail in their local areas, but I also note that it said there were monopolistic concerns.

Let me give an example of this concern. The first-ever political campaign I was involved in was something called the Auckland Energy Consumer Trust. This is the trust that owns Vector power lines. I stood on a ticket called Powerlynk with some very able local body politicians, and we ran a policy of 100 percent community ownership. When a lot of the power companies and lines companies had been disestablished and put into community trusts, and had been sold, the Auckland Energy Consumer Trust remained in community ownership. It was a great model, because it gave dividends to every single consumer. A cheque went out every year. It was a wonderful dividend that helped a lot of people who were really struggling to pay their power bills. But what happened? A right-wing organisation stood against us—it was part of the Citizens and Ratepayers Now ticket—and said: “We will not sell your power lines.” We said: “Hold on a second. Something is going on here. They said part-privatisation was not bad, but their campaign slogan is that it will not sell your power lines.” What did they do? They got elected on that promise, and they immediately sold 24.9 percent of Vector. I will tell members what happened when they did that. The sort of non-profit benefits that go with 100 percent community-owned organisation were really scaled down. I am talking about things like undergrounding. Undergrounding costs a lot of money. There is a non-profit motive, but it adds significant benefit to the communities. That was scaled right back, because as soon as we sell down these organisations into commercial ownership, the profit motive becomes the top priority.

That is what we do not want to see here. I have huge concerns about this. Within the Powerlynk ticket, on which I ran, we had philosophical debates about whether we should push for the lines company to enter the retail market. It was our fundamental belief, and it was Labour’s fundamental belief—we were in essence a Labour-led ticket—that a monopolistic organisation could be created and it would in fact not create benefits but take benefits away from consumers. Once we get a natural monopoly, especially in a country the size of New Zealand, in an area like electricity, where there is a small population and wide geographical area, then the barriers to entry become incredibly high. So we do not necessarily get competition; competition disappears and it is not replaced. Once that monopoly is there, it is extremely hard to control prices, because without competition the only thing we can do is legislate. So I have grave concerns about this, and they have been spoken about by my colleagues.

The Hon Nanaia Mahuta spoke about the lack of infrastructure development, as did Chris Hipkins. We have talked about—I do not know when it was—a D-shackle failure, and this was in terms of a lines company that was not putting sufficient effort into maintaining the infrastructure that carried electricity to the city of Auckland.

In the First World country we pride ourselves as being, if we do not have the electricity infrastructure running at 110 percent then there is no way in hell we will ever get overseas investment coming into this country to provide the direct foreign investment for jobs and the necessary resources to grow this country sustainably, and that is why I have concerns. Vector should concentrate—lines companies should concentrate—on providing an exceptionally good service to retailers, but if that disappears, if the lines are blurred, if they are owned by the same company or the same group of shareholders, there are monopolistic concerns, and that is not good.

In conclusion, I will sum up my two points. First, I am all for competition in a market where it has the potential to reduce prices. That is of absolute necessity to consumers, and I am absolutely for competition. My second point is that I do not think that Part 3 will provide that level of competition going forward. If this measure is implemented then in 10 years’ time we could well see a monopolistic structure that drives away competition rather than create it. When we drive away competition and end up with a monopoly we have no power whatsoever over pricing for hard-working, struggling New Zealanders who need electricity to heat their houses, to run their water cylinders, and to live. Thank you.

The question was put that the amendments set out on Supplementary Order Papers 154 and 166 in the name of Hon Gerry Brownlee to Part 3 be agreed to.