Duynhoven Harry: Electricity and Gas Industries Bill — Second Reading 
Duynhoven Harry: Electricity and Gas Industries Bill — Second Reading 
[Volume:619;Page:14708] 
Hon HARRY DUYNHOVEN (Associate Minister of Energy) 
 on behalf of the 
 Minister of Energy 
: I move  
That the Electricity and Gas Industries Bill be now read a second time 
. This bill is a further milestone in providing New Zealand with energy in an efficient a fair a reliable and an environmentally sustainable manner in the post-Maui environment. The bill contains measures to promote security of supply consumer protection and competition and to improve the governance of the electricity and gas industries. It updates the Electricity Act of 1992 to take account of the establishment of the Electricity Commission. The security of the supply of electricity is clearly essential to New Zealand and to New Zealanders. The bill provides an enhanced tool-box of powers for ensuring the security of the electricity supply including enabling the Electricity Commission to contract for reserve energy supplies for very dry years. Additional regulation-making powers are provided for use if required covering consumer protection the promotion of retail competition improved information for market participants and the development of distributed generation. Regulation-making powers are also provided under an amendment to the Crown Minerals Act to allow better disclosure of information relating to gas and oil reserves. The bill also amends the Commerce Act to clarify the interface between the functions and powers of the Commerce Commission and of the Electricity Commission in relation to the control of electricity distribution companies. 
The bill was referred to the Commerce Committee which heard submissions from a wide range of interested parties. I commend the committee for the excellent work it has done in refining this bill and I support the committee’s recommendations. I take this opportunity to discuss a number of improvements made to the bill by the committee. In relation to the gas sector the bill now provides for the establishment of an approved industry body to co-regulate the gas industry while retaining backstop powers to establish an Energy Commission if the industry’s body is not successful. A co-regulatory approach was proposed by the Gas Industry Steering Group made up of representatives from the upstream and downstream gas industry and gas consumers. It has been designed in consultation with and with the support of the industry. The co-regulatory model has been developed to ensure that the incentives on the industry are aligned with the outcomes the Government seeks and that the governance arrangements are constitutionally sound. 
The bill also amends the Electricity Industry Reform Act in order to allow electricity lines companies to own any type of generation equivalent to the higher of 50 megawatts or 20 percent of the network load. The companies are of course already able to own unlimited amounts of new renewable generation. The electricity lines companies asked that the provisions in that Act that restrict the ability of lines companies to invest in generation and retailing be repealed. While the lines companies made some valid points the Government believes that risks may still exist with regard to allowing lines companies back into generation and retailing. A major change of that nature to the current industry structure would not be appropriate without full consideration and consultation on the issues involved. For that reason instead of repealing the provisions outright Government members decided that a further easing of the limits on how much electricity the lines companies can generate is more appropriate. 
A number of important provisions are also included in the bill to ensure good governance and process. The Electricity Commission will be required to assess alternatives costs and benefits prior to making recommendations for regulations or rules. That will increase transparency around the Electricity Commission’s decision-making and will reduce uncertainty for the industry. The Government also expects the commission to achieve its objectives primarily through information provision and contracting and to use the regulation-making powers provided in the bill as a last resort. It is also proposed thatthe current powers of the Minister under the Electricity Act be curtailed in a number of ways including removing the Minister’s power to direct the commission limiting the Minister’s ability to amend the commission’s recommendations and precluding the Minister from promulgating regulations unless the commission has first made a regulation. 
The select committee has also amended the bill in such a way that the power to transfer jurisdiction for the targeted price control regime for lines companies from the Commerce Commission to the Electricity Commission has been delayed until 31 March 2009. That change acknowledges the view of many submitters to the select committee who validly suggested that any change in the regulatory jurisdiction for large electricity lines companies other than Transpower should be further deferred so as to maintain the continuity and integrity of the price control and other assessment processes already initiated by the Commerce Commission. A further important improvement made by the select committee is to strengthen the mandate of the Electricity Commission to promote electricity efficiency by allowing the commission to fund programmes relating to cost-effective energy efficiency and conservation. That is important in order to allow more effective promotion of energy efficiency and demand side management. The committee has also made explicit provision for Transpower to contract for generation and to manage grid reliability. That is important for situations where it may be more cost effective to generate electricity closer to the demand for it than to upgrade the transmission lines. 
The electricity and gas sectors are critical to New Zealand’s economic growth. We face continuing challenges to ensuring the security of supply in both sectors at the best possible prices. Those challenges include the depletion of the Maui gasfield our vulnerability to dry hydro years and the growth in demand for electricity. At the same time we aim to make continuing progress towards a sustainable energy future. This bill is a key part of the Government’s response to those challenges. The Government will clearly set out its objectives for the electricity industry in the Government policy statement that will be released following the passing of this bill. The Government policy statement will continue to invite the industry to use cooperative means to deliver on those results so that the Electricity Commission will need to use its regulation-making powers only as a last resort.