Carter John: Electricity Industry Bill — Third Reading 
Carter John: Electricity Industry Bill — Third Reading 
[Volume:667;Page:14291] 
Hon JOHN CARTER (Minister of Civil Defence) 
 on behalf of the  
Minister of Energy and Resources 
: I move  
That the Electricity Industry Bill be now read a third time 
. The bill will give the electricity industry a well overdue overhaul. When this Government took office there was widespread dissatisfaction with the performance of the electricity sector. Prices had risen relentlessly in the previous decade especially for residential consumers. At the time consumers had been asked several times to save power because not enough generation had been built to deal with dry years. There was also widespread criticism of the Electricity Commission which was seen as slow to deal with competition issues and to approve overdue upgrades to the transmission system. Last year the Minister set up a ministerial review to get to the bottom of these problems and come up with a workable and practical solution. The review consulted widely and proposed a comprehensive set of measures to get traction on the issues. The Government carefully considered the recommendations of the review and this bill implements the final decisions. 
The overall aims of the bill are as follows. Firstly it aims to increase the level of competition in the industry particularly in retailing and particularly in the South Island. Secondly it aims to put strong incentives on the industry to better manage the security of supply particularly in dry years. Thirdly it aims to streamline the governance and decision-making arrangements for the industry. In terms of improving competition in the sector the ministerial review concluded that the portfolios of the State-owned enterprises were not well balanced in terms of the location of their assets and activities and the types of generation that they owned. This meant that the State-owned enterprises tended to concentrate their activities in either the North Island or the South Island and did not really operate as nationwide competitors. A major objective of the bill is to compel the State-owned enterprises to compete nationwide. This is being done by transferring the Tekapo A and Tekapo B stations from Meridian Energy to Genesis Power and through virtual asset swaps between three State-owned enterprises via long-term hedge contracts. We are already seeing a noticeable uptake in real competition as a result of these changes. 
There are a number of other pro-competitive measures in the bill. These measures include letting lines businesses get back into retailing subject to various provisions designed to ensure continued open access to lines for competing retailers and generators; setting up a liquid hedge market so that generators and retailers especially new entrants and businesses generally can better manage market risk including volatile spot prices; reducing the barriers to retail entry by reducing the complexity of line tariffs; and setting up a fund to encourage consumers to shop around. The Minister is also putting pressure on the industry to speed up consumer switching times. 
The second main component of the bill is about improving the security of supply. To this end the bill contains measures designed to improve the incentives for the industry and its participants to better manage the security of supply and to make public conservation campaigns a last resort not a first resort. The measures include getting rid of the reserve energy scheme put in place in 2003 and ensuring that the Whirinaki power station is operated commercially. The ministerial review concluded that the reserve energy scheme reduced rather than improved the security of supply by transferring responsibility for managing security from industry participants to the Electricity Commission. The bill also requires retailers to compensate consumers when conservation campaigns are put in place and it enables a floor to be put on spot prices during campaigns and other supply emergencies. The aim of these measures is to ensure that the industry rather than the consumer wears the costs of poor supply management. 
The bill also improves governance arrangements in the electricity sector. It does this by replacing the Electricity Commission with a more focused independent and streamlined Electricity Authority. Functions better undertaken elsewhere are transferred such as the promotion of energy efficiency to the Energy Efficiency and Conservation Authority the approval of grid upgrade proposals to the Commerce Commission and the management of supply emergencies to Transpower. The new authority will be required to focus on getting the rules right with the objective of improving competition reliability and efficiency in the industry. It is also required to set up advisory groups including a Security and Reliability Council. 
Finally the bill includes the provisions of the discharged Electricity (Continuance of Supply) Amendment Bill. These provisions will ensure that rural electricity consumers will continue to receive secure electricity supply while allowing lines companies to meet their obligations in more efficient and cost-effective ways. 
Overall the Minister is confident that this bill will deliver a more competitive more responsible and more responsive electricity sector. However we need to repeat a caution: we cannot promise that there will be lower prices. There are a number of upward pressures on electricity costs particularly the need to build new power stations and transmission and distribution lines. We need to invest over a billion dollars each and every year to replace ageing assets and meet steadily growing demand. As has been said before we have long since run out of cheap options for building new power stations and transmission lines. We can give assurances however that this bill will put more competitive pressure on costs and prices in the industry and will improve the incentives for managing the security of supply. 
In conclusion the Minister and I would like to thank the Finance and Expenditure Committee for its work on the bill and to thank all those who made submissions. I commend the Electricity Industry Bill to the House.