Estimates Debate — Vote Energy

New Zealanders are paying too much for their power bills. The next Labour-led Government will do something about this very serious issue, which the current National Government is refusing to acknowledge even exists. What we have seen since the global financial crisis hit is that in every other developed country, power prices have dropped as demand has flattened and as protections for consumers have kicked in. New Zealand is one of the few countries in the developed world where power prices have continued to increase at twice the rate of inflation, despite flattening demand, a surplus of generation, and a collapsed carbon price.

In 1 year we have seen an increase of 10,000 in disconnections—in 1 year. That is 10,000 households that no longer have power because they cannot afford to pay the power bills. We have flattening demand in this country. We have an oversupply of generation. If power prices are not going down now, then they are never going to go down. It shows what the Labour Party has been saying, which is that the Bradford reforms have failed. We do not have the kind of competition in our retail market that would ensure that retail margins and prices are driven down in times of low demand. A Labour-led Government will do something about it.

We have a Minister of Energy and Resources who says that New Zealanders are not paying too much for their power prices. But he does not know what too much would be. So I think that is a zero credibility fail for the Minister of Energy and Resources. You cannot say that New Zealanders are not paying too much if you do not know what too much is, and the Minister of Energy and Resources does not know. I suspect that too much would be when the Minister of Energy and Resources cannot afford to pay his power bills on his ministerial salary. Then power prices will be too high. But until then the rest of New Zealand can suffer with power prices continuing to increase at twice the rate of inflation, and the Government refusing to do anything about it.

We have the second-biggest gap in the OECD between residential and industrial tariffs. So when the Minister stands up and says that the market is working really well, what he is saying is that it is working well for the big end of town. That is being offset by residential consumers, who are paying far more for their electricity than they should be, given the fact that New Zealand is blessed with an abundance of cheap, renewable energy. More than 60 percent of our electricity comes from hydro generation—from assets that were built by the taxpayers of New Zealand, which have been paid for time and time again—from a free public resource: water. We should have some of the cheapest energy in the world, and yet we do not because of the way we price electricity in this country.

I would like to see the next National Government speaker, Mr Jonathan Young, actually explain why hydro producers should be being paid the marginal price set by gas, when they have not done anything—when they have not done anything—to deserve that windfall and profit from assets that were built by generations of New Zealanders and taxpayers. A Labour Government will change the way we price electricity, because we do not have competition in our retail market.

I recently went to the launch of a new retailer in Dunedin called Payless Energy. The National Government rhetoric was: “Here’s another retailer. That means we must have competition.” Well, the reality is that there are 10 retailers now in Dunedin, and yet the market is still overwhelmingly dominated by the four big generator-retailers. They are happy to let those small companies pop up and have a handful of installation control points, but the minute they come to scale that is when they will no longer be tolerated. Just because you have a number of different companies does not mean you have competition in pricing, Mr Young. It does not mean you have competition in pricing.

So the first thing the National Government did was try to blame transmission charges and lines companies for the increases in power prices since the Bradford reforms. Let us be clear about the cost of the Transpower upgrade. Yes, it had to go ahead. Yes, it is billions of dollars. Yes, both Labour and National have agreed that the upgrade should go ahead. Here is the difference. A Labour Government said to Transpower: “You do not have to pay us a dividend, so you can pay for that transmission upgrade out of what you would have been paying to Government, and then there will be no pass-on cost to the consumer through the retailers because that’s how you can pay for it.” When National came in, not only did it say to Transpower: “We want that dividend back right now, by the way.”, but it said: “Can you backdate it.” And now we have a Government that claims to care about the rising cost of electricity on businesses and households saying to Transpower: “Actually, you need to charge consumers for what Government was paying for when Labour started that transmission upgrade work.”

So, Mr Young, why is your Government requiring Transpower to now supply a dividend and to backdate the payment of that dividend, when all it is going to do is impact on those transmission charges, which will now be passed on to consumers through the retailers? I have been going around visiting lines companies and they have been very frustrated. In fact, in the case of one lines company, which is publicly owned as most lines companies are, it wanted to pay a dividend back to its consumers. It wanted to pay a dividend back to its consumers, so it had to pass that through the retailers, because that is the way that it charges. None of that dividend was passed through to the end consumers. So here we have a lines company, which National likes to blame for putting up increases on households—[Interruption] Jonathan Young says: “True, lines companies are doing that.” Here we have a lines company that was actually trying to give some money back and the retailer refused to pass it on. It pocketed it, Mr Young. How is that a system that is good for consumers?

Let us have a look at what has happened up in Auckland, because what I think Mr Young does not understand is that actually lines companies are incredibly tightly regulated—thanks to the last Labour Government, which regulated lines companies. They are very tightly regulated as to what they can charge their consumers. They have a pricing path that is set by the Commerce Commission. They have to provide a certain return. They are not able to go out there and just charge whatever they want, like the retailers can with a retail margin. They have to provide a return that is based on their actual costs and then a fair return as well. So that is what they charge. The Commerce Commission did a reset last year, which came into force in April this year, where it actually said that Vector, which is our biggest lines company, based in Auckland, needed to drop its prices. So Vector did that and only two of the 11 retailers in Auckland have passed that cost saving on to consumers—only two.

The lines companies, which actually have no control over what they charge because they are so tightly regulated, which charge based on their actual costs, and which have tried to give money back to consumers but have not had that money passed through in some cases by the retailers, are apparently causing all the problems, according to the National Government. Well, that is not true. None of the research backs it up. The increase in prices since the Bradford reforms has been in the wholesale electricity market, the retail margin. It has not been in transmission charges, it has not been in the lines charges. It is utterly dishonest for National to claim that that is the case when it is not.

What the National Government likes to point to is the What’s My Number campaign and to the fact that that has been so successful, which it says shows that we have competition. Well, actually, there is no research that has been done as to why people change power companies. The UK had a similar campaign. It has actually researched why people change power companies. One-third of the people who changed, changed to a tariff that was cheaper; one-third of the people who changed, changed to a tariff that was exactly the same; and one third of the people who changed, changed to a tariff that was more expensive. What that shows is that there is a range of reasons why people change electricity retailer, and price is only one of them. One of the questions we have been asking the Government is how many of those people who have gone on the What’s My Number website were people who have shifted house, people who had just moved. They were not looking for competition; they had just simply shifted and wanted to find out who was out there. Well, the Government is not collecting those kinds of statistics either.

The reality is that when you look at that gap in price that is offered on the What’s My Number campaign, often the difference is an early payment discount. That is the difference in the power prices that are being offered. Well, if you cannot afford to pay the power bill in the first place, then an early payment discount is completely hopeless. The reality is that for the poorest families they are lucky if they can find one power company to pick them up. This kind of fantasy idea that the National Government has in this “La-La Land” that it lives in, that the poorest people out there actually have a choice of retailer when they are lucky if they can find one to pick them up and keep them on, shows just out of touch it is. We spent 9 years in Government trying to make the system work and it does not. The system is broken.

Mr Bridges said that the Bradford reforms just need time to bed in. They do not. They have utterly and completely failed. Fifteen years—it is time to actually do something about the fact that despite having some of the cheapest electricity being generated—

💬 Hon Tau Henare: Tell me why we’re 51 percent in the polls tonight. How do you work that one out?

I wish we could hook Mr Henare up to the national grid. All our power problems would be solved if we could hook his mouth up to the national grid. That is one big energy source over there. The reality is that tinkering is not going to make a difference. If we want genuine—genuine—competition in the retail market, and that is what we want, we need to change the way we price electricity. That is what the New Zealand power policy does. We are not regulating the retail market or the generation market. We are simply ensuring that retailers who want to come into the market are able to compete with the four big generation-retailers who up until now have been able to squash any real competition that comes into play.

New Zealanders know that they are paying too much for power prices. The model that we have selected is one that is commonly used overseas. It is not something that New Zealanders need to be scared about. What they need to be scared about is what is in that next power bill when it lands in their letterbox and when they have to open it wondering whether they are going to be able to keep the lights on for the next month. That is what New Zealanders are scared of, and a Labour-led Government is—

I am very pleased to speak after the last speaker, Moana Mackey, and just answer some of the questions that she has put forward. Moana Mackey contended that the line charges are not to do with the increase in power, that it is all to do with retailers. For her information, and for her betterment, I have researched the last 10 years of power charges in New Plymouth. If she will look over this way, she will see on this graph that the rate of increase for line rates has increased over the last decade and the rate of increase for retail is actually trending downwards.

I have gone through Ministry of Economic Development spreadsheets for every quarter of the last 10 years, looked at every—

💬 Moana Mackey: It’s dishonest.

It is not dishonest. That is the truth. These are facts—these are facts. I can show them to you if you would care to have a look.

The Labour Party and the Green Party, of course, are presenting to New Zealand the concept of a single-buyer market, and a person whom they are quoting is Professor Frank Wolak. They used his comments a number of years ago—4 to 5 years ago—to claim that generators have been taking super-profits out of the New Zealand electricity market of something around about $4.3 billion. Well, he was in Wellington this week and let me quote from Energy News. It says: “ ‘Moving to a single-buyer market for power generation would do nothing to improve competition, while a cost-based approach to pricing output also runs the risk of undervaluing water resources.’, a visiting US academic says. Stanford University’s Professor Frank Wolak says he can’t see why New Zealand would want to turn its back on the electricity market structure it has now.” That is what their expert has said this week in Wellington.

We do need to understand what has affected the increase in the prices of power. A number of these increases have happened through regulation increase in terms of the emissions trading system charge, which has increased the cost of electricity by around about 4 to 5 percent, and, secondly, the emissions trading scheme increase, as well. If you take out those two regulatory increases that have happened, if you look at the increase that has happened over the last number of years, you will see that the increase in electricity cost for New Zealand consumers is around about the rate of inflation, maybe a fraction above, certainly within the rate that the Reserve Bank has to monitor, and we can be very confident about that.

We also know that Transpower has been upgrading the national grid. Over this decade, starting in 2012, it is going to be expending around about $5 billion. In June 2008 Transpower commissioned an independent review of its maintenance practices and spending. This report by the Auditor-General, which came to the Commerce Committee, said: “Discussions with staff from both Transpower and the contractors revealed a workforce that has an innovative approach to solving problems. This has been driven mainly by a need to keep operational an aged asset base as little asset replacement has been undertaken on a broad basis in the last decade.” So under Labour’s watch the national grid became aged with very little replacement of that infrastructure. Some 39 percent of the switchgear assets are of the old technology, with an average age of around 37 years.

The Auditor-General in a report, Transpower New Zealand Limited: Managing risks to transmission assets, states: “We found that Transpower knew that the grid was becoming less reliable and performing worse. While it was still building staff capability, Transpower could not focus on both grid reliability and capacity, so it made the strategic decision in 2003 and 2004 to focus on addressing the grid’s capacity issues. The issues of age and necessary replacing and refurbishing of grid assets were given a lower priority.”

Who was the Minister of Energy at that particular point in time who signed that off? Because we are right now spending $5 billion catch-up money to ensure that our national grid is robust and gives security of supply to New Zealanders in their households and in their industries. We know in New Zealand what happened when the Māui Gas pipeline sprung a leak.

Kia ora, Mr Chairperson. Ngā mihi nui ki a koutou. Kia ora. In this Vote Energy debate I would like to talk as part of the estimates report around the issues contained in this report, which is the National Government’s power price rises and the National Government’s fossil fuel extraction agenda. I guess you can summarise the Government’s agenda as being more power price rises, more excuses, more blame game across the Chamber, more fossil fuels being dug up, more drilling, more mining, and more fracking Aotearoa. What we have heard in this debate is a whole bunch of excuses. We have heard a whole bunch of blame between the two successive Governments. What we have not heard a lot of is a lot of vision, a lot of plans, or a lot of going forward. We have heard a lot of going backward.

So what I want to talk about is what my vision is for energy in New Zealand: cheaper, cleaner, smarter energy. It is a strategy that focuses on New Zealand’s advantages, our strengths, it goes forward, it builds the economy, it grows jobs, it is about putting the power and the profits back to the people of New Zealand; it is not this blame and excuses we hear from the two old parties. So the Government’s dirty old agenda, which we have heard over and over again in this debate, is all about subsidising polluters by over a billion dollars a year in emissions trading scheme credits. It is about handing out $46 million a year in tax breaks to deep-sea oil drillers—already one of the largest and most profitable industries in the world—and it is about telling Kiwis this winter, as they open up the envelope with their power bill in it and see their power prices rise, that all they have to do is wait for Max Bradford’s reforms to finally bed in.

What we see from the National Party in its vision—or lack of vision—and in its agenda is an age of 19th century fossil fuel and crony capitalist inspiration. That is where it is looking, whereas the Greens are looking to the future. So what I want to talk about is three things: cheaper, cleaner, smarter energy. The first is New Zealand power. What we have seen since the Bradford reforms is that New Zealand power prices have increased 72 percent in real terms, while across the OECD they have seen a 6 percent reduction on average. We have now had the fifth-highest power price rises in the entire developed world, and under National what we have seen is our bills going up 400 bucks a year for Kiwi families. So the so-called market clearly is not working for New Zealand consumers, and the long-run marginal pricing model for electricity sees cheap hydro, paid for decades ago, being charged at the most expensive unit. It is at $700 million a year in excessive profits being taken out of Kiwi businesses, being taken out of Kiwi consumers’ wallets, which is a serious drag on our economy.

It has got real world impacts, too, because what we know is that a quarter of our New Zealand families are in energy poverty, spending more than 12 percent of their weekly income just to stay warm. We know Kiwis, elderly and renters, are going without power, they are going without food to get power, they are getting cold, they are getting sick, and it is a serious drag on the New Zealand economy. So that is why we propose New Zealand Power as a smart, cost-effective, efficacious solution to sit between the generators and the retailers. Like Pharmac, New Zealand Power will drive down the price of electricity, encourage competition, and encourage energy efficiency.

So I guess what I tell people around the country is that at this election they are going to get a real choice when it comes to energy, because Labour is on the same card as the Greens. What we are going to get is a real choice. Under National what we are going to get is more excuses, more power price rises, and more of our assets being sold off. Under the Greens what Kiwis are going to see is 300 bucks a year in savings for the average family.

The second thing I want to talk about is clean energy because in New Zealand we have got a wealth of clean energy options, but you would not know about it by listening to the Government benches. In fact, you would not know about it looking at the statistics, because we are not on track to meet the 90 percent renewables by 2025 target. In fact, we are doing worse than we have ever done before. We have got a lower percentage of renewables as a total percentage than we had in 1980. We have got a lower percentage than we had in 1990. So while all the Government’s attention is being lavished on foreign oil drilling companies, we are missing out. The smart money internationally is looking at clean energy. In 2011 net international capital investment in renewables was larger than all the fossil fuels, all the nuclear energy combined. That is where the smart money is going, yet National is spending all its time talking to major foreign oil-drilling companies.

The PricewaterhouseCoopers report says there is a $22 billion economic opportunity in clean energy for New Zealand. The Pure Advantage group of successful business people said there is a $6 trillion clean energy, green-tech sector our country should be getting a slice of. It is a business opportunity that is staring us in the face, yet the Prime Minister is going round opening up fossil fuel power peaking stations and getting international media attention for wanting to drill Middle Earth.

I want to give the Government a bit of credit where it is due. It is doing something about solar power. The problem is that the only thing it is doing about solar power is in Tokelau and Tonga, and it is putting up all these barriers for New Zealanders who want to be able to produce their own power and export it.

Thank you for the opportunity to speak on Vote Energy. This Government, under the able leadership of Prime Minister John Key, has taken many pragmatic steps to ensure that New Zealanders remain healthy while the cost that they pay remains low. All the previous speakers from the Opposition speaking on this vote did not touch on that area which is of concern to many people. I would like to touch on the area of keeping people warmer and healthier in their homes. The Government is investing in a new 3-year insulation programme that will deliver warmer, drier, and healthier homes to the communities in most need. I am based in an electorate that has people of low socio-economic means living in great numbers.

Budget 2013 allocates $100 million of operating funds over 3 years to the Warm Up New Zealand: Healthy Homes programme, targeting low-income households for home insulation, particularly those families with children and high health needs. It is expected to insulate around 46,000 additional homes over the period of 3 years. The Government is investing this money, which will be matched by private funders and trusts, to make sure that people live in insulated homes, which makes them healthier. The project is budgeted at $93 million for the upcoming financial year. Sixty percent of the funding will be provided by the Government through the Energy Efficiency and Conservation Authority, and 40 percent will be provided by the third party groups, such as iwi trusts, who will determine who will receive funding.

Warmer, drier homes provide real benefits to New Zealanders. New Zealand is a developed country, yet we still have rheumatic fever in our society. As well as the energy efficiency gains, insulating homes reduces health risks such as respiratory illnesses and serious diseases like rheumatic fever. Warm Up New Zealand: Healthy Homes will help boost the health and well-being of New Zealanders living in poor households, and it is part of the Government’s response to child poverty. The new programme will follow the success of the Warm Up New Zealand: Heat Smart scheme, which has seen around 215,000 homes insulated since 2009. The final $11 million of this programme is sought in this Budget. Funding expires at the end of the 2013-14 financial year, which will mean that by the end of September 230,000 homes will have been insulated and will benefit people.

Over the past 4 years, the National-led Government has changed the thinking in relation to home insulation in New Zealand. Now when people buy or rent homes they normally ask whether a house is insulated or not. That means that people are aware that insulation makes them healthier and it saves on power bills. With these words I support Vote Energy.

Vote agreed to.

Vote Labour