Electricity Industry Bill

I am very happy to take a call on Part 4, which essentially deals with security of supply. I will run through some of the provisions contained in this part, but, first of all, I want to pick up on some of the comments the Minister of Energy and Resources made in his very brief remarks when we began the Committee stage. The Minister talked about security of supply and the fact that we had several years of shortage during the tenure of the last Labour Government. Of course, I contend that that was all the previous National Government’s fault, because it created the mess in the first place when Max Bradford scrambled this particular egg. What is really interesting is that Gerry Brownlee used the prospect of further supply shortages as one of the justifications for some of the changes in this bill.

Let us go back to what Gerry Brownlee’s ministerial review said about the prospect of security of supply issues. The review stated that overall it is clear that sufficient investment has taken, and is taking, place in new generation. So there is no justification to say that there will be security of supply concerns because sufficient investment is not taking place. That is the first point, and I think it is really important that we do not buy into the rhetoric that there will be huge shortages because insufficient investment in new generation has taken place.

The ministerial review also found that it is in the market’s best interests—in the interests of retailers and generators—to talk up the prospect of shortages and to run savings campaigns in order to lower spot prices. It is in their financial best interests to create the impression amongst consumers that there will be a shortage, so that they can keep spot prices lower. In fact, that is also the position of some of the larger users. They wanted to see spot prices lowered, as well. That basically means that we create a perception of a shortage in order to move the burden of lowering spot prices on to domestic consumers. I do not think that is necessarily right. We have to keep that in mind when we talk about security of supply, because it is in the market’s best interests to create an impression that there will be security of supply.

This bill removes the reserve energy scheme put in place by the last Labour Government—the Whirinaki power plant. Let us think about that for a moment. As we have mentioned time and time again on both sides of the Chamber, the weather plays a huge part in the New Zealand electricity system. Hydro lakes and wind make up the bulk of our electricity supply. Therefore, it is prudent to have some reserve capacity that can be called on when the hydro lakes are low, when the wind is not blowing, and when the pressure really comes on to have some reserve supply. The incentives for the market to supply that reserve energy simply are not there. If people want to build a 400 megawatt power plant, they will want it to be operating the whole time. They will want to get the maximum dollar they can get out of their investment. They will not invest in a 400 megawatt power plant that will sit there and be used only occasionally. There is no incentive for the market to do that. The Labour Government recognised that need and invested in the Whirinaki reserve energy power plant. This Government is doing away with that. It is giving the power plant to Meridian Energy, and that creates some other issues. Meridian has built its entire branding and its entire strategy on being 100 percent renewable, but it is being made by this National Government to take a gas-fired power plant. With the stroke of a pen, suddenly Meridian’s clean, green 100 percent renewable brand is down the toilet, because the National Government is forcing it to take a gas-fired power plant. That measure also removes the reserve energy scheme altogether. If I was the chief executive of Meridian, and the Government had made me take this power plant, I would probably sell it. Why would Meridian want to keep a gas-fired power plant if it was going to fundamentally undermine everything that the company had set out to do in establishing itself as a 100 percent renewable electricity company? It is quite conceivable that the Whirinaki power plant will end up being sold if Meridian is forced to take it over, which is exactly what this bill does. It is something we need to consider very carefully. The ministerial review recommended doing away with the reserve energy scheme. We do not agree with that, so we do not agree with Part 4.

I want to talk about the compensation regime that this bill puts in place. The Government has said that if there are going to be shortages and conservation campaigns in future years, then electricity companies should have to pay consumers some compensation. The Government has fixed that compensation at the grand sum of $10 a week per account holder. If consumers are asked to reduce their electricity consumption, they will get $10 a week in compensation. Actually, the Finance and Expenditure Committee was presented with some quite compelling analysis that showed that in the context of the huge profits that electricity companies can make when there are shortages of supply, $10 a week per consumer is trifling. Being required to pay consumers that amount of compensation will not incentivise electricity companies to invest in conservation schemes. So I ask how we can make sure that electricity companies are investing in sufficient generation capacity to ensure that there will not be supply constraints in future years. Actually, this bill goes the opposite way, and this debate forces it to go the opposite way.

TrustPower said in its submission to the select committee: “The uncertainty created by the industry shake-up”—that is, Gerry Brownlee’s industry shake-up—“was likely to have a chilling effect on private electricity generators’ willingness to invest in new electricity plant, raising the prospect of shortages again within a decade.” So the Government says that it wants to have a market, but the market is constantly being rearranged all of the time. That removes security from the system and, therefore, disincentivises generation companies from putting in place the investment that we need in further electricity supply, and that is more likely to result in security of supply pressures.

I want to move to what Ari Sargent, the chief executive of Powershop, said in a blog before Gerry Brownlee made him take the blog down. Ari Sargent was talking about the Tekapō A and B asset swap, which is dealt with in Part 5 but has direct reference to Part 4, which talks about security of supply. Ari Sargent said: “This puts the security of supply at risk and will see a change in river operation that will increase wholesale prices and prices to consumers, particularly in the South Island,”. So that is from Powershop, and I place quite a lot of store in what it is saying. It is one of the most innovative electricity retailers in New Zealand, and I think that it has established a really exciting market model. It is saying that the changes in this bill will not actually increase the security of supply in New Zealand. Of course, it is not surprising that we are having this debate, because once again we are seeing more and more evidence of Gerry Brownlee pushing ahead with something that has no analysis to prove it will work. No analysis has been put forward of whether the requirement for generators and retailers to provide compensation during conservation campaigns will actually reduce the need for those conservation campaigns in the first place. No evidence has been put forward to suggest that that would be the case, and, in fact, some submitters argued quite strongly that it would not be the case. As I have said, it may be more cost-effective for generators and retailers to compensate consumers at that trifling sum of $10 a week than to face high spot prices.

It would be more worthwhile, if we are concerned about security of supply, to make sure that we are facilitating improvements in energy efficiency. The introduction of smart meters, as I have mentioned before, is one way that we could absolutely focus on energy efficiency. Potentially, if we get smart meters in every house, and if we get them operating effectively, it could result in a whole new, very different model for the way that the electricity market currently operates. It would potentially allow consumers and retailers—and the retail model would have to change—to buy their electricity at off-peak prices when the demand was lower, and spread their electricity usage, particularly if they had smart meters that would talk to appliances, for which the technology is potentially there. It could result in much better use of electricity.

The question was put that the amendments set out on Supplementary Order Papers 154 and 166 in the name of the Hon Gerry Brownlee to Part 4 be agreed to.