Parker David: Electricity Industry Bill — First Reading 
Parker David: Electricity Industry Bill — First Reading 
[Volume:659;Page:8571] 
Hon DAVID PARKER (Labour) 
: 
 May I start by saying that I agree with the provisions in the Electricity Industry Bill in respect of penalising generators and retailers if a conservation campaign is necessary for retail consumers. Indeed I hope that I was one of those who brought to bear that thinking. Last year we had repetition of an event that occurs periodically in New Zealand. New Zealand has a very high dependence on hydroelectricity and it is true that if we have a high reliance on hydroelectricity which most of the time is a real benefit if we have a very very dry hydro inflow sequence the system comes under pressure because we do not have as much water to flow through our generators. Last year for 3 months we had the lowest inflow sequence since the 1940s―for over 50 years. 
Two things were clear from that. Firstly despite that very low inflow sequence the system coped. So despite the lowest hydro inflow sequence for 50 years we maintained security of supply in New Zealand even with the doom and gloom predictions at the time from amongst others the Hon Gerry Brownlee. Secondly it became apparent that it was easiest for industrial users and generators to sacrifice the interests of residential consumers. The industrial users generally have tariffs that are lower than those paid by residential consumers but they face a loss if they have to reduce their production as a consequence of a shortage of electricity in inordinately dry years. They resist that by complaining that other people other than them should bear the pain. In the case of electricity generators and retailers unless they have a hedged position if there is a low hydro inflow sequence they also face the real risk that they will be burnt during a low hydro year because they have an obligation to supply their big industrial users and their other users. If they cannot generate enough electricity they suffer a loss because they cannot generate as much as they have promised they will sell. So they too have a financial interest in causing someone else to turn off their electricity. 
Both of those major groups the retailer generators and the industrial users have an interest in putting the costs on to residential consumers. The cost to residential consumers is obviously higher on a per unit basis than it is to commercial users because they generally have to pay a higher per unit charge. As the system is currently configured it does not have any economic disincentive for the generators or the industrial users to prefer the interests of residential consumers or to properly take them into account. Accordingly this change to allow conservation campaigns to trigger a financial cost to the wholesalers and retailers and indirectly through that mechanism to industrial users is a welcome change to settings and I congratulate the Minister of Energy and Resources the Hon Gerry Brownlee on following that through. 
However there are some other problems. I agree with Chris Hipkins in that I cannot see the sense in breaking up the Lake Tekapo assets. The Waitaki system assets run from Lake Tekapo though the Ohau canals through the Pukaki system through Benmore through Aviemore then the Waitaki system. They are all hydrologically linked. They are most efficiently run as one unit. This bill is putting an artificial financial market outcome higher than the natural physical configuration of these assets. That is not good policy. It will increase costs in the long term it will see the water less efficiently used and it will add to the costs of the generators because we will have different engineers and different managers of these same assets that are in physical proximity to each other. It just does not make sense so that is a mistake. 
The next mistake is in respect of the abolition of some of the Electricity Commission’s powers. Let us reflect on why the Electricity Commission was formed. Max Bradford’s reforms had this fiction that we would somehow have competition in lines companies. As a consequence there was a rule for Transpower—the organisation that runs the backbone of New Zealand’s wires. There is only one it is an absolute monopoly and there will never be competition in it. Yet Max Bradford had a rule that was written by Treasury for him and was put into effect by the last National Government. It said that Transpower could invest in upgrades only if its customers agreed that the upgrade was necessary. It was a nonsense. Meridian Energy Mighty River Power Genesis TrustPower and Contact Energy would never agree. As a consequence TrustPower never had any confidence that it would get paid for additional investment that needed to be made in our transmission infrastructure so it did not make it. That is absolutely reflected in the amount of money that was spent on transmission upgrades in the period of the late 1990s and early 2000s when that rule applied. The amount that was spent was less than $100 million per annum. In fact sometimes it was in the tens of millions—closer to zero than to $100 million per annum. 
Since we have changed that rule because investment in transmission capacity was most obviously overdue transmission expenditure has increased not twofold not threefold but tenfold. There has been a tenfold increase in transmission expenditure. That comes with risk; the risk for a monopoly is that it will over-invest in its infrastructure. We have to control against over-investment as well as under-investment. We did that through the Electricity Commission. Through the Electricity Commission we have had approvals of the big upgrade through the Waikato. That upgrade process saved New Zealand consumers about $70 million because it knocked costs off an overly costly model that was initially proposed by Transpower. We have had approval of the new HVDC upgrade across Cook Strait. We have had approval for a ring supply into Auckland; there has been a linear supply into Auckland and when we had the outage at Otahuhu a few years ago we saw how fragile that supply was. If a linear supply breaks—and there is always a risk that kit will break—there is no alternative way to route power into Auckland to any substantial degree and therefore we have moved to a ring route to Auckland which is well through the Electricity Commission process. We have had upgrades in the South Island. We have a tenfold increase in expenditure on transmission and it was necessary. 
We have also had good transmission planning. We told the Electricity Commission throughout the previous Labour Government that we wanted more renewables. The Government is now saying that those environmental outcomes are irrelevant to replacement for the Electricity Commission. That is a mistake. Through those prior provisions or the current provisions in the principal Act we told the Electricity Commission that renewables were important. The commission had a look at the issue it saw that geothermal was the important source of new renewables in the central North Island and it came forward with plans to approve major expenditure on what is called the Wairakei Ring to get all of that geothermal out of the central North Island into the points of demand in Auckland and also south of Auckland. The current provisions work well there compared with the prior provisions of Max Bradford. 
In terms of allowing lines companies to re-enter retailing that was impossible under the Max Bradford reforms because again they were left unregulated. Despite being absolute monopolies those local lines companies were left unregulated. Some of them overcharged and under-invested so consumers ended up paying twice once through the inflated prices which were unregulated until the previous Labour Government resolved that and second because these companies had distributed all their profits consumers had to put up with the reality that additional money was needed for spending on that infrastructure. Now that those lines companies are regulated in their price path through the Commerce Commission it is probably not so bad if they re-enter retail competition. We will look at that. But it is nonsense that we are taking energy efficiency concerns from the Electricity Commission. We now have a system where all of the participants have an interest in selling more electricity rather than there being an economic return on increased efficiency to sell less. The Electricity Commission was not the whole answer to that but it was making progress—it brought forward energy-efficient light bulbs in New Zealand. Gerry Brownlee does not like energy-efficient light bulbs but the Electricity Commission did very well in bringing them forward. 
John Hayes 
: Nanny State! 
Hon DAVID PARKER 
: That is just absurd. Helping New Zealanders have lower power prices through improved efficiency makes economic as well as environmental sense. I am dismayed that the National Government does not see that obvious truth even now. So taking away the commission’s conservation function is nonsense. Indeed I think that the Government should be pursuing something Labour started in Government but did not finish which was to give an economic reward to lines companies for increases in efficiency and investment in efficiency rather than just rewarding them for additional sales of power. I think it is still a moot point as to whether there is sufficient competition in electricity. I do think this bill cures the problems identified by the Wolak report. It really is just changing seats rather than changing the fundamentals of an ineffective market.