Brownlee Gerry: Electricity Industry Bill — First Reading 
Brownlee Gerry: Electricity Industry Bill — First Reading 
[Volume:659;Page:8565] 
Hon GERRY BROWNLEE (Minister of Energy and Resources) 
: 
 I move  
That the Electricity Industry Bill be now read a first time. 
 At the appropriate time I intend to move that the bill be referred to the Finance and Expenditure Committee for consideration. The purpose of this bill is to improve competition in the electricity industry and to constrain price increases to improve the security of supply and the management of dry years and to improve governance arrangements in the sector. The bill also generally tidies up and consolidates other electricity legislation. 
In April this year I set up a ministerial review of the electricity market in response to serious concerns about security of supply inadequate governance and rising electricity prices. The review team which included an advisory group of six independent experts released a discussion paper in August with a series of recommendations. One hundred and thirty submissions were received and considered. The ministerial review team concluded that first although a large part of the increase in electricity prices over the last decade could be justified prices have risen faster than increases in the cost of new generation; second retail margins for consumers are high and increasing and competition is weak outside the main centres and in particular in the South Island; third some generators have market power in dry years when water levels are low; and fourth current governance arrangements are unsatisfactory and could be improved. The Government made decisions earlier this month on the review’s recommendations and this bill implements those decisions that require legislation. 
I will briefly mention electricity prices. The bill includes several measures to put downward pressure on prices particularly for residential customers. The measures include a limited reconfiguration of the three State-owned generator retailers. The Tekapo A and Tekapo B stations currently owned by Meridian Energy are proposed to be transferred to Genesis Power. This will improve the geographic balance of the State-owned enterprises by giving Genesis Power a generation and retail presence in the South Island and it will increase the diversity of views of the management of hydro storage resources. The three State-owned enterprises will also be required to enter into one-off long-term financial hedge contracts and the Whirinaki power station would be as it is proposed transferred to Meridian Energy. The asset reconfiguration aims to increase competition particularly in the retail market. It is expected that the State-owned enterprises will carry out these changes at the Government’s request but there are provisions in the bill to enable Ministers to direct the State-owned enterprises and to provide immunity to directors as a backstop. That procedure has been used in previous reforms of this nature. 
It is also timely to allow the lines companies back into retailing to encourage further retail competition. Part 3 of the bill will replace the Electricity Industry Reform Act which separated the industry in 1998. The bill however retains corporate separation rules and other provisions needed to prevent the re-emergence of anti-competitive practices and to make sure that consumers benefit from the changes. The newly formed Electricity Authority will also be required to put in place a liquid hedge market and to introduce a mechanism for hedging against price risks caused by transmission constraints. These are long-overdue changes to open the market up to new generators and retailers. There are temporary backstop powers for the Minister to amend the new electricity industry participation code to deliver on these improvements if the new regulator fails to do so. 
A suggestion is also coming through that sufficient new generation is being built although there is a widespread perception that New Zealand has a fragile and vulnerable electricity supply system. Frequent dry years over the last decade have highlighted that concern. Currently some market participants have incentives to call for conservation plans to lower spot prices in tight times—in other words the participants ask others to bear costs while they get benefits. The reserve energy scheme introduced in 2004 also reduced the incentive on parties to manage risks for themselves. When the lakes get low enough the Whirinaki station has been cranked into action. Consumers over and above their prices through levies paid $90 million last year for diesel to fuel the Whirinaki power station. The bill puts in place several measures to address these issues. It does away with the reserve energy scheme retailers will be required to compensate consumers during public conservation campaigns and a floor will be put on spot prices during supply emergencies. Along with other non-legislative measures these changes are designed to improve the incentives for better management of dry years and other supply risks. 
The Electricity Commission was set up in 2003 following the failure of the industry’s self-governance arrangements. However it was poorly designed with too many objectives too many functions and too much dependence on the Government of the day. This bill disestablishes the commission and replaces it with an independent Electricity Authority. Its independence from the Government will improve certainty and predictability for the industry. The objectives of the Electricity Authority are much narrower than those of the Electricity Commission. The proposed objectives are to promote competition in the electricity industry promote the reliable supply of electricity and promote the efficient operation of the industry for the long-term benefit of consumers. In contrast the commission has all of those objectives plus fairness environmental sustainability the promotion of energy efficiency and seven other more detailed requirements. The authority’s functions are narrower and more tightly defined. Its focus will be on rule-making and on improving the operation of the market. It will develop and administer an electricity industry participation code replacing the current governance rules. Changes to the code will not need to be approved by the Minister and that will bring New Zealand more into line with Australian and British electricity regulators and regulations. 
Overlap with other regulatory bodies will be reduced and synergies will be improved by the transfer of a number of functions to other bodies. The systems operator will take over the management of emergencies as well as responsibility for forecasting and providing information on the security of supply. The promotion of energy efficiency will be considered and consolidated in the Energy Efficiency and Conservation Authority. The approval of grid upgrades will be transferred to the Commerce Commission to ensure that all grid expenditure is considered in an integrated manner. There will also be a security and reliability council to provide senior-level expert advice on security issues to the systems operator. 
The bill incorporates the provisions of the Electricity (Continuance of Supply) Amendment Bill as reported back from the Commerce Committee in July of this year. It also incorporates provisions from the Electricity Industry Reform Act which is repealed by this bill and the Electricity Act. These provisions are part of the framework for the regulation of electricity and as such fit within this bill leaving the Electricity Act to focus entirely on access to land and electrical safety matters. 
This bill implements the measures requiring legislation that come out of my review of the electricity market. I believe that the overall package of changes will help to constrain prices improve the management of dry years and ensure that the regulator is focused on making timely and overdue changes to the market. As I said at the start of my speech it is my intention at the end of this debate to move that the bill be considered by the Finance and Expenditure Committee.