Parker David: Standing Orders — SessionalText is incorporated into the Bound VolumeParker David: Standing Orders — Sessional[Sitting date: 06 March 2014. Volume:696;Page:16427. Text is incorporated into the Bound Volume.]Hon DAVID PARKER (Deputy Leader—Labour): The Labour Party will be supporting this motion because we want to have Meridian Energy scrutinised every year at select committee so that we can highlight the differences in outcome from the policies that National is pursuing compared with those that would be secured for New Zealanders in a way that would reduce their annual household electricity bill by around $300 per annum. Mr English at the start of this debate asked us on this side of the House to explain how it works. In order to get an understanding of that you have to have go back in history a bit and think about what has already happened.Meridian Energy is the largest hydro-power producer in New Zealand. That hydro power is amongst the cheapest electricity to produce in the world. The cost of production of that electricity has not changed materially in the last couple of decades. It will not have gone up even by the overall cost of inflation. The cost of producing electricity has not changed very much but the price that is paid for that hydroelectricity to Meridian Energy has gone up year after year after year because of the pricing model that is used. As the cost of new electricity from alternative sources like gas—which doubled in price—and alternatives to gas like geothermal and wind went up under the current pricing model the price paid for hydro power has risen to the same level essentially. So the price that is paid for hydro power has risen far far above the cost that it takes to produce it.This Government the prior Labour Government and the National Government before that went along with that while the extra profit that was being taken from that hydro power was going back to public purposes. The extra profit that has been taken as a consequence of the price in overall electricity prices does not come from a change in the hydro station; it has actually come from the free public fuel that flows through those hydro stations. We all went along with that when that was being recycled via the Government’s books into other things that the Government spends money on for taxpayers like hip operations or educational services. But what the Government has done now is privatise that benefit through the sale of those assets to private shareholders so instead of the public getting the benefit from the public rivers that are driving that electricity it is actually private shareholders who are getting it. We say that that is unfair. We say as a consequence that we should not put up with this profiteering from our public rivers which drive the hydro stations that Meridian Energy makes most of its money from.So how do you fix it? Well there are two ways you could fix it. You could price water. You could charge companies for the use of their water and then you could recycle that money again through hip operations and education services for the benefit of New Zealanders. That was one option that we could have pursued. The reason we did not pursue that option was that that would have been characterised by the Government and by some of the industry participants as pushing up electricity prices even though it would not have. It would have been characterised in that way and therefore we would not have been able to achieve the benefit for New Zealanders that we want to which is equivalent to $300 a year for an average consumer.The alternative is to say that you will pay different sorts of electricity producers different amounts for their power. In respect of hydro power which is so cheap to produce you do not pay them the same amount as someone who is making wind power geothermal power or gas-fired power or indeed hydro power from a newer hydro facility because you effectively take as a proxy for the price of water a reduction in the amount that they are paid for their hydroelectricity. Is this practical?Well in September last year in advance of Meridian Energy shares being offered First NZ Capital put out a document calledMeridian Energy Limited: Cash Flow Powerhouse. In it First NZ Capital considered the prospects of Meridian Energy including what would happen if the Labour proposal was imposed. It said this is how it could work. Bill English obviously has not read this. I am surprised that Treasury has not brought it to his attention given that it is a publicly available document.The document reads: “Step 1: Hydro generators are compelled by legislation to sign fixed sum annual contracts in return for all their future hydro revenue.”—that is they get paid their operating costs plus a fair return on their capital. That is the historic cost of those dams—not some artifice that is later calculated but what those dams cost them when they bought them. They are paid a fair return on capital plus their operating costswhich is a far lower sum than they get under the current market model which is privatising those extra amounts to others. “Hydro generators are compelled by legislation to sign fixed sum annual contracts in return for all their future hydro revenue.” You have got to control when the water is released and the document suggests that this would be “passed to the electricity System Operator (currently part of Transpower)” and we agree that that is how it would work.It continues: “Step 2:NZPower extractsswaption agreements from all the major thermal plant to limit its exposure to spot purchase cost”. Then “NZPower interposes itself into the current settlement process” and the market continues to work. Indeed the market would work better in our view because you would be able to separate retailers from the generators and you would get more retail competition as well. In step 4 according to this report from First NZ Capital “Financial impacts ongentailers would now be largely in place” and these steps could be completed within 1 to 2 years. So within 1 to 2 years under a Labour Government you would have processes in place that would strip out all that extra money that is being robbed from New Zealanders from the value of our public rivers and given to the 1 or 2 percent of New Zealanders who have purchased shares in those electricity companies. That money instead would flow through to lower electricity prices. The average New Zealand residential consumer would save $300 a year—around that amount—and commercial users and others would save around 5 percent on their bills.This is what would happen if you had a decent Government stopping the privatisation effectively of our rivers because that is what has happened. The Government is privatising the value of those rivers for the private shareholders of the likes of Meridian Energy to the detriment of everyone else—the 98 percent who do not get that private benefit from our rivers. This would reverse that. It would also increase competition in the market by separating retailers from generators. We would have greater competition in retail and we would have more transparency with people bringing on more generation. They would be less reliant on physical hedges if they were retailers and if they were people who just wanted to generate they could sell that into a proper market without having to be a giant generator-retailer themselves.You would get more small generators entering on the generation side you would get more competition at retail and you would have more competitive pressure on prices. You would have better demand management because those people could bid in. Instead of increases in capacity you could have someone aggregating efficiency or taking the peak off demand which is expensive to cater for. That might be someone like Vector in Auckland aggregatingphotovoltaics in the future in a cost-effective manner so you could take the peaks off demand. You would have increased competition at retail and you would have increased competition for people wishing to supply new generation because they would not need to be a generator-retailer either. You would find that some people who are willing to invest in that sort of thing would probably accept a lower rate of return than the generators that are involved in the current less competitive market.As I have said the super-profits that have been taken off our rivers would be stripped out of the system and fed into the market in a way that would reduce prices. Rather than this being an abolition of all markets it is actually not; it is just changing the way in which they are structured. It would be fairer to New Zealanders who live in a country where we have amongst the lowest electricity production costs in the world with 60 percent of our electricity being probably the lowest-cost electricity in the world like other hydro-rich areas. Those benefits would flow through to consumers.We have plenty of disadvantages in New Zealand. We are distant from large markets with the risks of exports and exchange rate fluctuations being faced earlier by our businesses than in countries with larger economies. Those other economies do not facethe transport costs that we have for long distance exports. For goodness sake! At least our businesses could have the advantage of our natural bounty which is low-cost electricity rather than concentrating that benefit in the hands of the 2 percent of people who purchased shares in the likes of Meridian Energy.