Parker David: Electricity Industry Bill — In Committee 
Parker David: Electricity Industry Bill — In Committee 
[Volume:667;Page:14161] 
Hon DAVID PARKER (Labour) 
: 
 The history of Part 3 as Chris Hipkins has already touched upon is that after the Max Bradford reforms we went through a period when lines companies were left unregulated. A terrible mistake was made by the then Government which assumed that if there was a monopoly there could also be competition that would somehow constrain price increases and that companies would act appropriately. History sadly now shows that that was wrong. The lines companies did increase their prices but they did not invest in their infrastructure. This was not true of all lines companies around the country but it was true in respect of some of the lines companies. They increased their prices to consumers but rather than spending a fair proportion of the money they collected on investment in their lines they distributed it to their owners which were sometimes councils. 
As a consequence consumers have ended up paying twice. We were left with rundown lines companies and the Commerce Commission which was subsequently appointed as a regulator of the lines businesses came in and regulated their returns. But the commission found that with some of those companies the cupboard was bare. Although those companies had collected revenue over the years that should have been spent on their lines they had not spent it on the lines and consumers were effectively forced by what had happened to pay a second time and to pay extra revenue to the lines companies. That second time under regulation from the Commerce Commission payment was required to be spent on the maintenance replacement and extension of the companies’ lines capacity. When I was Minister of Energy that state of affairs was explained to me by officials and indeed by members of the Commerce Commission who acknowledged that that had happened in respect of some lines companies. 
There is no doubt that that was a mistake in my view and that Parliament under the previous Labour Government was right to introduce regulation of returns for lines companies because they are absolute monopolies. We have only one set of lines and the decision to allow that industry to be deregulated was always misguided. The risk in respect of a monopoly enterprise like a lines company if we allow it to enter into other parts of the electricity market is that it will cross-subsidise parts of its business using its monopoly rights as a lines operator. The tension that regulation of other activities by lines companies attempts to control concerns the risk that the company will use its lines revenues to cross-subsidise either its retail margins if it is in retailing or its generation businesses if it moves into generation. 
Those risks are different depending on the ownership structure of the trust and I would like to hear the Minister in the chair the Hon David Carter talk about what he sees as the difference between council-owned companies and cooperatives which are effectively owned by the people who buy electricity from or through them. Those lines companies are owned by local communities. If a monopoly rent is being extracted there might be some misallocation between users but in a general sense the money is going back to the community if there is any excess in prices. I am less worried about those ones. But some of the companies are not owned in a cooperative sense like that; they are owned by councils. Councils use them as a source of revenue and they try to maximise that in a way that defrays rates. At one level we can see why they would want to do that but we can also see how that could act to the detriment of electricity consumers who have a different interest: they want to pay a fair amount only for their electricity. 
One of the concerns that I have about that is the change in the amount of electricity that will now be able to be generated by a local lines company before it has to have ownership separation of its generation business from its lines business. In the original bill that went to the select committee the limit was proposed to be 100 megawatts but the bill has come back with the recommendation that a lines company can have up to 250 megawatts of generation directly connected to the national grid before the company has to have ownership separation. That is a lot of juice; that is more than 1 year’s increase in demand for New Zealand’s electricity. We are talking about a substantial amount of electricity so I ask the Minister to take a call and tell us whether the Government is convinced that it will be protecting competition in the market. 
I think we could argue about the answer to that question. On the one hand it would be nice to have a few more people competing in investing in generation; that makes some sense. It is going back to the old model we had before Max Bradford where we had local council-owned companies that generated retailed and ran the local lines company. On the other hand we are still maintaining the fiction that this bill will result in an effective market for the sale of electricity at wholesale and retail levels that will effectively constrain price. I remain unconvinced of that. 
I would be interested to hear whether the Minister can tell us from the chair whether any modelling has been done about whether this extra generation capacity which will come potentially from lines companies will have some impact on the differential between residential commercial and industrial tariffs. The tariff that is paid by residential users in New Zealand has grown. The gap between that tariff and the tariffs paid by industrial users has grown very large over the last decade and I for one find it hard to explain. I have concerns that it is a pointer to there being insufficient competition in the market which leads to inappropriately high tariffs being paid by residential consumers. 
I would also like to hear any information the Minister can give us about whether there are plans by local companies—that is by the likes of the Alexandra example I gave earlier. I know that Pioneer Generation is situated there. Pioneer Generation is I think owned by a community trust and it owns some generating assets there yet that does not seem to have had any effect on retail tariffs for those people in Alexandra who not only have the Clyde Dam which I spoke about and the Roxburgh Dam on their doorstep but who also have smaller schemes in and around the Central Otago area run by Pioneer Generation. Despite all of those generation assets just being on the doorstep those people are paying a higher tariff than people in most other parts of the country. So I would like to hear from the Minister what the impact of the increasing generation by that local lines company will be on tariffs for those people and whether there has been any research or estimates done about the effect that will have on price. 
My suspicion is that it will not have much effect. Actually what would have a greater effect would be for the Government through its State-owned enterprises to say that it had a lower expectation about the rate of return on those assets. That would accord with what the Governor of the Reserve Bank was calling for about a year or a year and a half ago when he said that the expectations of infrastructure companies about profitability were excessively high. That feeds into my concern that there is insufficient competition in that particular market and that this tinkering with the market will not make a material difference to that state of affairs. As a consequence the price paid for power especially by residential and small commercial customers will remain higher than is justified which is to their detriment. 
I ask the Minister in the chair to take a call and tell us what estimates have been made about the extra generation that will come from these lines companies. I also ask what reports the Minister of Energy and Resources has received about the effect that generation will have on prices at both wholesale and retail level for residential consumers and small commercial consumers.