Electricity Industry Bill

Part 5 is the most ridiculous part of this bill. It forces one electricity company, namely Meridian Energy Ltd, to give up some of its power stations on the Waitaki River and transfer them to Genesis Power Ltd. That means that we will have less efficient use of the resource.

💬 Hon John Carter: Rubbish!

“Rubbish!”, we hear. It is absolutely clear that we will have less efficient use of the physical resource. Instead of having the coordinated use of that water, sequentially, through the different power generation facilities on the Waitaki system—from Tekapō, through the canals, through Ōhau, through Benmore, through Aviemore and through the Waitaki system—separate owners will be running separate dams on that system. There will be coordination issues when it comes to the release of water. There will be different players having control of those different assets, and they will have different views about what they should be doing with the water and when they should be doing it.

There can be no more efficient use of that water resource than having it under the control of a single player. If our market is so inept and uncompetitive that we have to cause changes that will cause resource inefficiency in order to have more market competition, then we have to conclude that the market is so fundamentally flawed that we should ditch it.

It is ridiculous that we will use the resource for the generation of power less efficiently in order to get a more competitive market outcome. It is a nonsense that we will use our physical resource—that is, the hydro resource—less efficiently in order to try to engineer some improved market outcome, and this change was panned virtually universally by the submitters who came to the Finance and Expenditure Committee. Whether they were generators, retailers, industry commentators, or experts in the operation of the electricity system, they said, virtually universally, that this was crazy. Submitters said it did not make sense to use the physical water resource less efficiently in order to have a market outcome. If that water is used less efficiently, it means that some of it will be used when it should not be. Some of it will be used when it is worth less and when it should be saved for use at the most crucial times.

If our market is so uncompetitive that we have to contrive its improvement through the forced sale of assets in a nonsensical way, from Meridian Energy to Genesis, then we will ruin the Meridian brand, which is currently 100 percent renewables in respect of its own generation. Why would the Government do that? I think the reason for that is bloody-mindedness. Gerry Brownlee is not standing up for renewables—and New Zealand has a magnificent advantage in renewable resources for our electricity generation.

Gerry “Sexy Coal” Brownlee—that is what he called himself in that video before the last election—does not believe in renewables. I doubt that he believes in his heart that climate change is a real or proven threat to the world. He would rather see more thermal generation. In fact, rather than celebrating more renewables, he is always out there digging up a bit more coal, trying to mine national parks, or trying to bring forward gasification of coal or more sources of coal, all of which produce greenhouse gas emissions—which are not produced by renewables.

I know that the board of Meridian, the chief executive of Meridian, and Meridian staff think it is absolutely abhorrent that they are being forced to take thermal generation assets that produce greenhouse gas emissions. Meridian Energy has branded itself on being 100 percent pure and clean, but Gerry Brownlee’s definition of 100 percent pure and clean is obviously similar to the view of the Minister of Tourism, and he does not mind besmirching this brand by forcing this ridiculous obligation to take thermal assets. Gerry Brownlee then modified that obligation right at the end, I think, and said it could just put the water assets on Genesis but not require it to take the thermal. Is that correct? [Interruption] I am not sure, either. Perhaps another member can clarify that for me. But the idea that Meridian should even have to consider doing that was ridiculous.

I return to the first point I was making. It is an absurd idea that this Parliament should legislate to reduce the most effective use of the Waitaki water for hydroelectric generation. It defies belief that the Government would be so stubborn as to persist with this ridiculous plan against the advice of virtually every submitter to the select committee. This measure will not reduce the tariffs for residential users. It will not narrow the overly large gap between residential and industrial tariffs in New Zealand.

This legislation will not cure the problem of the higher tariffs that are paid by places like Alexandra, which sits right next to the generating facilities on the Clyde Dam, the Roxburgh Dam, the Teviot scheme, and all the other schemes in Central Otago. It will not cause the tariffs paid by residential consumers in Alexandra to be closer to those paid by consumers who are further away from the physical generation assets but who happen to live in the biggest centres of population.

Part 5 will not fix that problem. Nothing in this part will substantially limit the price increases that consumers are facing. It will not materially improve competition, and there is absolutely no justification for using the physical resource less efficiently in order to try to engineer some improvement in the market. In fact, it is an acknowledgment by the Government that the market is seriously flawed, otherwise why would it inflict upon the system a decrease in the efficiency of the use of the physical resource? That must be its only justification. It is not a good enough justification but it must be the only justification—that there are significant market imperfections currently. We know that in the absence of a proper market, there is insufficient constraint on price increases, and residential consumers effectively bear the brunt of that through the higher tariffs they pay through this system, which is not sufficiently competitive.

It is time for us to acknowledge, in my opinion, that the Bradford reforms have not worked. They plainly did not work in terms of lines. I think we can conclude that the system is broken. We can reach that conclusion on the basis of the differential between residential and industrial tariffs, which is out of whack compared with the rest of the world, and the fact that we have such a lack of competition, at least in significant parts of the market throughout New Zealand and perhaps in the whole of the residential market. This tinkering with the market rules will not work, and this part of the bill exemplifies how ridiculous it has become.

I think it was Michael Cullen who occasionally used the example of people making more and more complex changes in order to justify their view of the world. People used to do that when they held the view that the Earth was the centre of the solar system. The different orbits of everything else in the solar system was explained so as to justify the belief that the Earth was the centre of the solar system when in the reality the sun is the centre of the solar system and everything revolves around the sun.

Well, it is a bit like that in the electricity market. We have had to bolt on regulation, and we have more regulation coming. We now have these ridiculous changes in respect of the use of the Waitaki power assets, and still the Government will not admit what is becoming more and more obvious to every residential consumer in New Zealand. We do not have real competition. We actually have the Government plundering the dividends.

I am very pleased to take a call on Part 5 of the Electricity Industry Bill. As the member for Te Tai Tonga, I really need to talk about Waitaki, because the waters of Waitaki from their source at Aoraki through to the coast are of paramount importance to Ngāi Tahu.

Ngāi Tahu, of course, have put in their submission on this part of the bill. When the bill proposed to transfer ownership of both Tekapō A and Tekapō B power stations to Genesis Energy from Meridian Energy, Ngāi Tahu went on to high alert. Aoraki is the sacred mountain range and Waitaki is the ancestral river, and they are both fundamental to the identity of every Ngāi Tahu person. As such, Ngāi Tahu, as tangata tiaki, have inherited responsibilities to manage the natural resources across the takiwā. Indeed, it is extremely timely to be considering this issue in advance of the report of the Land and Water Forum, which will be released tomorrow, for the mana of Aoraki and the waters of the catchment are an integral element of the tribal, economic, cultural, and spiritual values of Ngāi Tahu.

We come, then, to the issue of asset reconfigurations specifically related to the Waitaki power scheme. In the Māori Party manifesto He Aha Te Mea Nui? we make a commitment to whānau, hapū, and iwi, as tangata tiaki, to assist them to take whatever measures are necessary to ensure the well-being and future good health of the environment. In particular, we note that issues involving water, including water rights and privatisation, must include the mana whenua.

So we now come to Supplementary Order Paper 121. Te Rūnanga o Ngāi Tahu in its submission made the case very clear that shareholder Ministers should enter any processes related to existing arrangements involving Ngāi Tahu in the spirit of good-faith Treaty partnership. The submission recommended a joint approach by Meridian and Genesis to address Ngāi Tahu matters in the Waitaki catchment, and wanted to encourage the Government to recognise the importance of a proactive working relationship between both of the State-owned enterprises and Ngāi Tahu. A key recommendation put forward by Ngāi Tahu was that the relationship should provide a forum to resolve historical issues of cultural displacement in the Waitaki. I want to place on record the Māori Party’s support for both Te Rūnanga o Ngāi Tahu and the local rūnaka sitting down with the Government to work through the complexities and consequences of the asset reconfiguration provisions in respect of the Waitaki power scheme.

This is particularly important in light of new clause 124A, “Purposes of sections 124B to 124H”, in Supplementary Order Paper 121. New clause 124A(b) states that the purpose of sections 124B to 124H is “to maintain current effects on the environment and rights and obligations in respect of the Waitaki power scheme,”. This is where the key issue falls for us. From what Te Rūnanga o Ngai Tahu has reported, the so-called current effects on the environment of the Waitaki power scheme are actually detrimental to their relationship with the Waitaki River. The challenge, therefore, for this House is to seek to improve the environment within the catchment, rather than merely maintaining the status quo.

We remind the Committee of the position put forward so eloquently by Ngāi Tahu that any discussions involving mana whenua—both Te Rūnanga o Ngāi Tahu and the local rūnaka—must be entered into in the spirit of good-faith Treaty partnership. We look forward to a commitment from the Minister of Energy and Resources as to how the advice of Ngāi Tahu will be taken on board.

I listened very carefully to the contribution from Rahui Katene and I acknowledge that local member for Te Tai Tonga for putting forward the views of Ngāi Tahu. If that were to be the case, then I am sure the Māori Party would vote for the Supplementary Order Paper I am proposing.

Supplementary Order Paper 163 delays the commencement of the asset swaps by 1 year to allow more time for a thorough cross-benefit investigation and for the types of issues that that member raised to be considered prior to the asset swaps. The Supplementary Order Paper changes clause 124(2) to ensure that that investigation can take place. I am also putting forward an amendment on the asset reconfiguration review. I propose that the Electricity Authority must undertake a review of the effect of the asset reconfiguration on retail electricity prices for consumers, for much the same reasons that I raised previously in the debate. This is a key part of the bill and a fine example of where politics got in the way of a good idea.

It seems like the Minister of Energy and Resources sat down and drew on a piece of paper that it would be nice to shift this there and that it would probably have this kind of effect. There is no real evidence to substantiate or justify that cost benefit. In fact, all the submissions that came before the Finance and Expenditure Committee said that the cost benefits are unproven. The member opposite Peseta Sam Lotu-Iiga may shrug and disagree, but he needs to read the submissions. Given that he did not finish his last contribution in this debate, I challenge him to argue this in more depth.

It is of great concern to us that the Minister is proposing an asset swap of this nature when the benefits of such a swap are unproven. Many submissions did not think it would deliver the gains that the Minister says it will. We have concerns about the Waitaki catchment, because the way in which electricity generation occurs is part of an integrated system. The submissions raised the importance of that more eloquently than I.

💬 Peseta Sam Lotu-Iiga: Which submission?

I tell the member that the Institute of Public Administration New Zealand objected to this. If that member were to read the submissions, he would see that there were a number of them that did not support the asset swap. I challenge that member to get up and explain in detail why his Government is proposing that this is such a good idea when so many submissions objected and raised concerns about its benefits. If he is shrugging and saying no, then let him stand up, take the next call, and say why his Government is proposing that this is a good thing. I would love to hear that debate.

I was heartened to hear the very genuine concerns of Rahui Katene, the good member for Te Tai Tonga. I hope that the Māori Party supports my amendment. It would be a bit of a taihoa signal—tatari, me kōrero anō tātou. It is the type of critical decision that needs further thought. That is the key point of my contribution on Part 5: it needs further thought. The evidence does not demonstrate that the asset swaps will deliver the gains that the Minister says they will. Many, many submissions supported the argument we are putting forward today. More important, my Supplementary Order Paper is a clear signal to take a breath and have another look at the information, because structural reform of this kind will not deliver the gains that the Minister says it will.

💬 John Hayes: Yes, it will.

No, it will not. I ask Peseta Sam Lotu-Iiga to take a call.

We are getting to the guts of the Electricity Industry Bill now. Possibly the most significant change being made in it is the asset swap. Let us be clear on what that is all about. There is no evidential base to suggest that this bill will result in more security of supply or lower power prices. This makes State-owned enterprises more attractive for privatisation.

💬 Hon Nanaia Mahuta: Is that the real agenda?

That is the real issue here—the bill makes the State-owned enterprises more attractive for privatisation.

We know that although John Key said the Government would not sell any State assets, that was only in the first term. We are coming towards the end of the first term of this National Government. There will be an election next year. National is quietly starting a process so that if it gets back on to the Treasury benches next time, there will be a fire sale. The energy State-owned enterprises, the biggest State-owned enterprises that there are, are the most attractive for private sale. So this bill is all about making those State-owned enterprises more attractive for private investors. That is what it is about. It is not about lower power prices, more affordable electricity, or better security of supply; it is about making the energy State-owned enterprises more attractive for privatisation.

There is no evidence. There has been no evidence and no robust analysis to show that moving Tekapō A and Tekapō B out of the Meridian Energy - controlled Waitaki water catchment system and handing them over to Genesis will improve the situation. In fact, quite a lot of advice and evidence suggests otherwise. Even Treasury did not think the case had been made. Treasury was concerned that the robust business case analysis for the asset swaps had not been done. But Gerry Brownlee is just going to blunder on ahead anyway, without any evidence to suggest that the asset swaps will work. Gerry knows best. Gerry decided that he would cut up this State-owned enterprise, cut up the Waitaki water system, and hand over Tekapō A and Tekapō B to Genesis. No matter what the evidence presented to him was, he was going to go ahead and do it, anyway.

There are other things that can be done and that are being done to help to address the security of supply issue. Meridian Energy and Genesis already concluded a winter hedge agreement earlier this year so that in dry years when Meridian Energy cannot generate from the hydro, Genesis agrees to fire up the Huntly power station to full capacity, meaning that there will be no security of supply issue. The rationale for the swap is greatly diminished by that agreement, which has already been reached. The virtual asset swap is another way of doing it, without having to go through this particular mechanism.

I want to talk about what some of the people in the know in the industry had to say about the asset swap. I come to Ari Sargent, the chief executive of Powershop, who had some quite strong views on this and some quite constructive views on where we could go with the electricity industry, before Gerry Brownlee muzzled him and told him he was not allowed to say anything. He said: “Tekapo can control the water available to generate electricity through the entire Waitaki system, made up of eight separate hydro lakes. It is illogical to reduce the co-ordination between the Waitaki catchments and completely reckless to provide commercial incentives to a single supplier who has the power to restrict water to the rest of the catchments.” That was from somebody in the industry who said that was a bad idea that was likely to result in one of the State-owned enterprises maximising its use of its water to the detriment of the other State-owned enterprise on that particular water system. When we are talking about water flow, it does not make sense to have one company controlling the top end and another company working at the bottom end, because the company at the top end can control the amount of water that the company at the bottom end will get.

Genesis will be able to control the amount of water that flows down the rest of the system into the part that will be controlled by Meridian Energy. It will not create the incentives for the most efficient use of the water in that system, and that is what experts have been telling us. Again, I come back to Ari Sargent, who stated: “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 if this bill is all about lowering power prices for consumers, here we have experts in the field telling us that that will not be the case and, in fact, that it will increase power prices for consumers, for those at home struggling to pay their power prices. There is expert advice to say that the asset swaps will increase power prices.

I ask where Gerry Brownlee’s evidence is that the asset swaps will lower power prices. I read every single submission and every document that came before the Finance and Expenditure Committee and nowhere was any compelling evidence presented that that would work. Let us be clear about this. This is Gerry Brownlee sticking his finger in the air and hoping that it will work—the “suck and see” approach. He does not actually know it will work and has not been able to produce any evidence that it will work; he has just decided to give it a go. In fact, I think he even said that. He said: “We’ll give it a go.” in the House when we were debating this bill in its earlier stages. “We’ll give it a go.” is the Government’s line on the matter. Well, I think that when we are dealing with multimillion-dollar State assets, which these energy companies are, we need a slightly more robust analysis than “We’ll give it a go.”, and Gerry Brownlee has not been able to produce that. Gerry Brownlee has not been able to produce it yet.

I will come back to the Labour Party minority report from the select committee on this bill, where we drew on the Ministry of Economic Development’s advice to the select committee. I will quote from it, too. It stated that “it is not possible to prove that the benefits of the transfer will exceed costs and risks”. Let us count them off now. We have the Ministry of Economic Development saying that it is not convinced it is a good idea. We have Treasury saying it is not a good idea. We have Powershop, one of the most innovative companies in the electricity market, saying it is not good idea.

What do the technical experts have to say? The Institution of Professional Engineers made a submission to the select committee, and, because I am on a roll, I will quote from it, as well: “IPENZ does not support the transfer of Tekapo A and B as, more than any other proposal, it may result in the electricity system’s reduced operational resilience.” That was from the Institute of Professional Engineers. It told the select committee: “Tekapo A and B are part of an integrated system. Changing that system could result in potential losses of efficiency, conflict of interest between Meridian Energy and Genesis Energy during periods of low demand, reduced security of supply and reduced flood management. The transfer will require agreement between Meridian Energy and Genesis Energy—who are required to operate as successful competitive businesses. The gain in retail competition is too small to justify the risks.” That was what the Institution of Professional Engineers told the select committee. So I will count them off again. Treasury said it was a dumb idea. The Ministry of Economic Development said it was a dumb idea—well, actually, that might not be fair; it said that the case had not been made. Both of those agencies said that the case had not been made. The Institution of Professional Engineers pretty much said that it was a dumb idea, and so did Ari Sargent from Powershop.

There is no evidence to suggest that the asset swap will work—none at all. As I have said, when we are dealing with multimillion-dollar State assets, which these power companies are, some commercial business case should be presented, and it should be more than Gerry Brownlee simply standing up and saying: “I think I will give it a go. I think this is a good idea. I do not have any evidence for it, but I think it is a good idea.” That is not good enough. That is not good enough coming from a Minister of the Crown.

Labour is very opposed to this particular provision in this bill, almost more than it is opposed to all of the others. We are opposed to most of the others as well, but we are very concerned about this one in particular. There will be a less efficient use of water. There is no guarantee that the asset swap will lower power prices. It could create all sorts of conflicts of interest on the Waitaki water catchment system. No business case has been made to suggest that it will work, and a lot of advice has been presented to the select committee suggesting that potentially it will not work.

Before I move on and finish on that point, the other thing is that the time frame is very tight, and already we are dragging our heels on this bill—we are already a month behind. This bill was supposed to have been passed months ago. I urge the Government to back off from the accelerator on the asset swaps, rethink it, and go back to the drawing board. It is not a good idea. No case has been made. The Government needs to get the facts together, build the case, and then maybe reconsider it.

The question was put that the amendment set out on Supplementary Order Paper 163 in the name of the Hon Nanaia Mahuta to clause 124 be agreed to.