Electricity Industry Bill — In Committee 
Electricity Industry Bill — In Committee 
[Volume:667;Page:14129] 
Electricity Industry Bill 
In Committee 
Clause 3 Act binds the Crown 
CHRIS HIPKINS (Labour—Rimutaka) 
: 
 Thank you very much for this opportunity to speak on clause 3 of the Electricity Industry Bill. I will make some introductory comments. Labour will be opposing this bill. We opposed it at the first reading we opposed it through the select committee process and we will continue to oppose it now. This bill simply dusts off Max Bradford’s old policies of more market more privatisation and more competition in the electricity sector. I can see that Roger Douglas is getting very excited about the bill already but it will do nothing to address the three fundamental priorities in the electricity sector: security of supply affordability and sustainability. It does nothing to address those things and that is the reason why Labour will be opposing it. 
New Zealanders are struggling to make ends meet at the moment. The National Government’s GST increase which will of course apply to electricity bills will do nothing to help them with that particular predicament. Therefore this bill is simply another blow because it does not deal with the fundamental issues that New Zealanders are currently facing. Those fundamental issues concern the cost of living going up which the Electricity Industry Bill does nothing to deal with at all. 
Labour members took a very active interest in hearing submissions during the select committee process. We were concerned about a number of the issues raised and we were concerned that the analysis does not appear to have been done that would justify many of the provisions in the bill. I will be talking about more of those issues. We were particularly concerned about the asset swap involving the Waitaki water catchment system which is something I will talk more about when we get to that part of the bill. The case has not been made for that swap. Treasury raised concerns about it and so did the Institute of Professional Engineers New Zealand and so forth. So we will be raising a number of concerns regarding that when we get to that point in the bill. 
This bill as I mentioned in my introductory comments does nothing to deal with National’s major election promise when it came to electricity prices. Gerry Brownlee John Key and Bill English went up and down the country saying that power prices were too high and saying that Labour had let power prices continue to go up and had not done anything about that. But what do we know? Well here is a bill. What does it do? It does not address the issue of power prices which is what New Zealanders were all expecting the Government to deal with when it came into office and when it introduced this bill into the House. This bill is silent on power prices. In fact it will do nothing to control the exorbitant rise in electricity prices that people have seen. It will do nothing to address the concerns raised by the Commerce Commission in its recent report on the electricity market. In fact it raises a whole lot of new concerns. It simply goes back to the failed experiment that Max Bradford started in 1998. 
One of the criticisms that Gerry Brownlee keeps coming back to the Labour Opposition on is that he says we had 9 years to deal with that so why did we not do something? Well it is very difficult to unscramble an egg. The Government sold Contact Energy and privatised a lot of the retailers and lines companies to the point— 
Aaron Gilmore 
: The Government didn’t privatise them. 
CHRIS HIPKINS 
: Well the local authorities did—under direction from the Government. 
Aaron Gilmore 
: They chose. 
CHRIS HIPKINS 
 They chose to? Under direction from the Government they privatised the retailers and the lines companies and it is very difficult to unscramble that particular egg and get back to the point where there can be any kind of coherent system. So instead the previous Labour Government established the Electricity Commission which was designed to address some of the failures in the market. But Gerry Brownlee with this bill is now stripping out many of the functions of the Electricity Commission by establishing a new Electricity Authority. That authority will look at only a small part of the equation though and one of the biggest opportunities for us if we are talking about more efficient use of energy is to get people to use less energy if they do not need to. But that function is being taken away from the Electricity Commission; it will not be with the Electricity Authority and that is just crazy. If we want the Electricity Authority to be the overarching body that looks at all of these things and that manages the electricity sector then saying to it that it can manage the electricity sector but that we do not want it doing anything about electricity efficiency and the more efficient use of electricity—actually reducing demand on the system—is just crazy. For example one way we avoid significant capital investment in the transmission system and in the management of that system is to get more distributed use of electricity more localised generation and more efficient use of electricity which is something this bill does not address. 
The CHAIRPERSON (Hon Rick Barker) 
: Just before I take the next call I remind members that we are in the Committee stage or the “nuts and bolts” stage. This is the simplest clause that one could hope to see in legislation: “This Act binds the Crown.” Members should address their comments to the purpose of the clause and not have a wide-ranging debate. 
Hon NANAIA MAHUTA (Labour—Hauraki-Waikato) 
: 
 Clause 3 is a very specific clause in the Electricity Industry Bill. When we listened to the previous speaker my colleague Chris Hipkins we heard him raise questions that were fundamental and germane to clause 3 “This Act binds the Crown”. The question is whether the Crown is capable of achieving what it said it would achieve. We have very serious questions about that because if this legislation addresses the huge differential between domestic and industrial energy consumers then the Crown will be bound by the solutions in the legislation. Will it be able to deliver on that issue? I think not. But we can explain that further on in the debate on the bill. Will this be the bill to ensure that there is oversight in terms of fairness of price setting in the electricity sector? The solutions offered in this bill all bind the Crown so we think not. We can explain that further later on. 
Will the asset swaps being promoted be the structural change that increases efficiency in the sector? We have grave concerns about the fact that assets swaps may not deliver what the Government thinks that they will yet the Government is bound by the solutions it has promoted to the public—that this is the structural change that will increase overall efficiency and perhaps price benefits to consumers. However as the point was made by Chris Hipkins and also in the first reading debate and subsequent submissions to the Finance and Expenditure Committee a number of concerns about asset swaps are raised of the structural change not delivering what the Government says it will. 
So we have a concern that clause 3 will not be honoured. We have a concern that clause 3 will not at all be delivered on in terms of ensuring that overall the bill delivers the gains and improvements to domestic consumers. We can debate that ad infinitum in the later stages of the bill but it is really important to ensure that the Minister of Energy and Resources takes a call at some point to uphold some of the expectations he has created on the solutions from this type of reform which will deliver benefits primarily to domestic consumers. We do know that there are huge differentials between the rates of increase of domestic energy prices in comparison to industry users. We know that domestic consumers are feeling the pinch and that they want the Crown to be bound by solutions that will work for them and that we do not think that this bill will deliver. So I am sure the Minister will be only too eager to take a call on that particular matter. 
It is a short clause but it is the most crucial clause. If the Minister is true to his word to many New Zealanders throughout the debate that this bill will deliver the gains and that it will tackle the price increases that many households have felt then he should be able to explain that in the Chamber today. We know that if anything is important in this bill to the people listening it is that they just want to know that it will benefit them in the pocket where it matters most. Far too many New Zealanders those on fixed incomes kaumatua are paying far too much for their monthly power bill. They want a solution that will deliver a real benefit step change to them at home and in the pocket. I do not think asset swaps will do that I do not think that the limited role of the Electricity Authority will achieve that and I certainly do not think in the immediate to medium term we will see a huge drop in price through shopping around. I think there are some huge challenges in the shopping around message that the Government is promoting. It applies to electricity but not gas if one is swapping one’s providers. I think there are some oversights in the way the Government is pushing through with this legislation. 
But as I said clause 3 is very short. It binds the Crown. My proposition is that it will bind the Minister in terms of the expectations he has certainly created that this bill will deliver benefits to domestic consumers and I do not think it will do that. 
A party vote was called for on the question  
That clause 3 be agreed to. 
Ayes 68 
New Zealand National 58; Maori Party 5; ACT New Zealand 4; United Future 1. 
Noes 52 
New Zealand Labour 42; Green Party 9; Progressive 1. 
Clause 3 agreed to. 
Part 1 Preliminary provisions 
CLARE CURRAN (Labour—Dunedin South) 
: 
 I am pleased to speak in the Committee stage of the Electricity Industry Bill. There is absolutely no evidence that introducing further competition and asset swaps will tackle the huge price variance between domestic and industrial power users. Despite this Government’s pre-election promise to lower power prices National has seriously taken its eye off the ball. New Zealanders want to pay lower power prices and they were led to believe that National would deliver affordability. The Government has said the legislation means there will be more competition and more stability in the electricity industry. Although there may be a bit more competition happening right now stability or affordability is certainly not happening in the electricity industry. Essentially the effect of this legislation is to make things worse for the vast majority of New Zealanders such as the families who are struggling to make ends meet and our senior citizens who are living on fixed incomes and all the while their electricity prices continue to go up. 
As members have heard Labour does not support this bill. It has not supported this bill at any stage. Thousands of New Zealanders are currently feeling the squeeze when paying their electricity bills and they will not receive any help from the Government’s electricity market review or this bill. In fact things will just become worse for them. After promising that the Government would take action the Prime Minister has offered very little to help New Zealanders who are finding it difficult to pay their energy bills when their family budgets are so tight. That is about to get added to by the 2.5 percent GST rise and by allowing companies to use the emissions trading scheme as an excuse to price gouge between 5 and 10 percent with nothing but a meek warning. National promised it would do everything it could do to take the sharp edges off the recession and help struggling Kiwi families. But the Government’s electricity market review and the bill miss the point. Nowhere in the overview of the bill does it even mention constraining or reducing prices. 
Any reforms of the electricity sector need to deliver as members have heard on three priorities: sustainability security of supply and affordability and predictability of prices. These reforms do not go any way towards addressing any of these priorities. Nor do they give us any clue as to how to balance the competing considerations at stake. Transferring assets between power companies and reshuffling the bureaucracy is just smoke and mirrors which does not guarantee any immediate relief for Kiwi power users. 
I will refer back to what the Government said it wanted to achieve with this bill which was more competition and stability and I will talk a little about Dunedin which is one of the coldest places in the country during winter so electricity bills are quite high there. I will refer to an article in the  
Otago Daily Times  
last Friday that reported that Contact Energy lost more than 2000 Dunedin customers in the same quarter that it controversially hiked prices up by more than 9 percent. It had 47 percent of the 50000-plus market or more than 24600 customers in the May quarter. At the same time that Contact Energy increased its prices by up to 9 percent the Prime Minister and the Minister of Energy and Resources warned companies not to use the emissions trading scheme as an excuse for price increases when they learnt of its review in June. Contact Energy said at the time there were actually two increases: a Dunedin-specific 6 percent increase to reflect the cost of generation and supply and a nationwide 3.2 percent increase to meet the costs of the emissions trading scheme. Meanwhile at the same time Mercury Energy increased its prices by 3.3 percent. Just over a week ago Contact Energy announced that it would increase its prices again when GST rises on 1 October. 
Hon GERRY BROWNLEE (Minister of Energy and Resources) 
: 
 I want to address a couple of things that came up in the previous discussion on clause 3 and are being repeated in debate on this part of the Electricity Industry Bill. Firstly the Labour Opposition says it has concerns around security of supply prices and sustainability. In looking at those three things I say that this review of how electricity is governed and the regulations around the production and sale of electricity comes on the back of a period under the previous Government where we had several electricity crises— 
Chris Hipkins 
: It didn’t rain. 
Hon GERRY BROWNLEE 
: —during so-called dry years. The one thing that is really interesting to me is that we never ran out of electricity during that time. That raises the issue as to whether the way in which the governance of the sector and the views on the worth of the water and of storage were being properly considered. That is why the Government has looked at asset swaps to get a different view. That is why we have looked at virtual swaps of large tranches of electricity and that is why we are looking at having a more liquid hedge market. 
On the issue of price I make it very clear that I have never at any point said—and no one will find a quote from me saying—that we will bring electricity prices down. I have repeatedly said that we will get a more stable price path for electricity. One thing I point out is that in the May 2009 to May 2010 year the average electricity price rise was 2.9 percent. That compares to over 8 percent for each of the previous 8 years under the previous Government. I think there is a very good trend there. 
With regards to the situation in Dunedin I simply say to Dunedin residents that if one company is jacking up its prices through the roof they should look around and see who is not. There has never been more choice for people in that city than there is at the moment. That choice is driven directly out of the ability of Genesis Energy to ensure its own supply into that market. 
On the issue of sustainability I say that we were recently able to report once again that New Zealand is enjoying the benefits of very high levels of sustainably produced electricity—73 percent in the latest  
Energy Quarterly 
. I concede that part of that is because of the commitment to thermal generation— 
Hon David Parker 
: Geothermal. 
Hon GERRY BROWNLEE 
: —geothermal generation made by the previous Government; the former Minister of Energy is right to correct that. But it is also worth pointing out that at Huntly at the moment coal is being replaced as a fuel with gas which is having a very positive effect on reducing emissions from that important piece of kit in the New Zealand electricity system. 
The question was raised about this bill not dealing with prices. Well the members who raise that question totally failed for a very long period of time to deal with outrageous prices. This bill at least creates an environment where there is pressure on retail sales where there is the ability for others to enter a market and where there is capacity for companies to secure a supply that means they can meet their consumers’ demands. 
The Electricity Commission was set up by the previous Government and was required to do a broad range of things. The Electricity Authority set up by this bill has a much smaller range of things to do and I think that is appropriate. One of the most important things it will do is make rules. One of the failures I saw in the system was that Ministers were required to sign off on rules. Quite frankly few Ministers have the time to read those rules let alone understand what they are about. I think having an authority that has a better focus on that will see us with a better surer and more secure arrangement. 
I might also say that the issues raised about energy efficiency are important. I can say two things there. Firstly the current Government has funded the Energy Spot on national television. It runs many times during the week and gives people practical tips about how they might reduce their energy bills. Further we have committed a large tranche of funding to the home insulation programme and the Clean Heat programme which are seeing literally tens of thousands of New Zealanders in warmer drier homes where energy efficiency will be much improved. 
I also say that the funding flow is now to the Energy Efficiency and Conservation Authority. The authority will be required to engage in a broader programme for getting a better approach to energy efficiency. One of the things I hope it will pick up very quickly—it is a little outside the purpose of this bill—is the issue of industrial use of electricity business use of electricity and commercial use of electricity where a possibility exists I am told for very very substantial savings in the amount of energy this country uses. I do not discount the idea of a notional power station that indicates to people on a year-by-year basis how much efficiency we have managed to get across the country. I think it is extremely important and taking that role away from the Electricity Authority formerly the Electricity Commission and putting it with the Energy Efficiency and Conservation Authority will give the public a great deal more confidence about the information that will be provided to them. 
I raise the issue of the emissions trading scheme. Although some power companies may have suggested that the emissions trading scheme is the reason for their price hikes I have repeatedly said that I think that is unreasonable. The fact is that 73 percent of electricity sold in this country in the last quarter was generated from renewable sources and around 25 percent of that was from thermal. That indicates that there is a much lesser draw on the requirement. The Government has capped the price of carbon dioxide emissions at $25 a tonne effectively meaning that industry pays half of the cost which is $12.50. The average price appears to have been something between $18 and $18.50 recently which puts it back to $9. I think the costs that some companies are applying are excessive and we have said that we will want to have a good look at that as we go forward. 
I note that we would have a long way to go to use up on electricity charges the $100 a week extra that superannuitants are now getting since this Government was elected than was the case under the previous Government. Although Ms Curran might be concerned about one company jacking up its prices by 9 percent in one part of the country 9 percent was the average price increase for 8 years. Not only was the price going through the roof but also we had so-called electricity shortages. Although I admit that some of that shortage was due to the hydrology it was not at the frequency that we saw over those years. That is why we are looking at the issue of asset swaps and that is why we have looked at virtual swaps among those companies so there are balanced obligations. It finally means that what should have been in place for years between the very large hydro generator in the South Island and the very large thermal generator in the North Island is being put in place. There is plenty of evidence that those swaps will create a more secure environment. 
I think it is unreasonable to suggest that the Crown may not be capable of being bound by this bill when clearly the previous Government had absolutely no evidence to suggest that it was bound by previous Acts. None of the predictions that were made by previous Ministers came to pass. I can at least say that since we started down this process things have greatly improved for consumers. That is a completely unarguable position. I look forward to reasonable discussions about the way in which aspects of this bill might be applied but I think in a general sense suggesting that everything was better the way it was before is a completely wrong position. If the Labour Party wants to argue that we should have done nothing and just carried on the way things were then it is saying that New Zealanders were condemned to 9 percent and 10 percent price rises per annum for their electricity. We have rejected doing that and have had a bit of a go at seeing whether we can straighten things out and get a better and more reasonable arrangement for the way that electricity is marketed and sold. 
There is no backing off the idea that the best form of investment should be chosen every time. At the moment we are seeing that the best form of investment appears to be in geothermal energy; we certainly encourage that. But I would not in any way want to take away the opportunity for electricity companies to look at gas where it is needed. A number of projects are on the books. I hope that they are developed because gas has a much lesser carbon profile than coal and it provides very fast instant back-up to the system particularly where we have wind energy which may drop off very very quickly. Having an over-reliance on that particular fuel source would be a disaster for New Zealand consumers. It has its place. 
The CHAIRPERSON (Hon Rick Barker) 
: Before I call the next speaker I remind members that although a range of bills have gone through on wide-ranging debates this bill is not one of them. We have had two speeches from either side and I think that is fair enough to set the scene. We have had one excellent example of how one focuses on the material and introduces other points but we are on Part 1 which consists of technical aspects of the bill. I expect the speakers from now on to stay within the Speaker’s rulings and Standing Orders for the Committee stage of a debate. 
Hon DAMIEN O’CONNOR (Labour) 
: 
 Absolutely Mr Chairman. I refer to clause 4 “Purpose” which states: “The purpose of this Act is to provide a framework for the regulation of the electricity industry.” The Minister in the chair the Minister of Energy and Resources gave a well-meaning but useless speech in the Chamber and I have to say he has done it before. I recall that Minister making such a speech or a similar one anyway with good intent back in the 1990s. The question I ask of him is where “Mad Max” is. 
Dr Rajen Prasad 
: Who? 
Hon DAMIEN O’CONNOR 
: Max Bradford started this whole thing. This is about managing Max’s mad markets quite frankly. Max Bradford said that the markets with very little regulation would deliver long-term secure and cheaper electricity for this country. I can remember the Hon Nick Smith stating in the newspaper in Nelson that he would bet a bottle of wine with me that prices in electricity would come down. I am still waiting for the wine. 
The reality is that the Government has at least acknowledged that it needs regulation to improve the situation. The previous Labour Government tried but we failed I have to say. We did not do what was necessary because we were trying to put Humpty-Dumpty back together again. The integrated electricity system that we had in this country was disintegrated by Max Bradford on the basis that the market and competition would deliver more efficiency more security and cheaper electricity into the future. It may have been the same officials then who are here now—I am sorry; I do not want to unfairly bring the officials into it—but we have to realise that we have a disintegrated market which has failed time and time again. 
The basic problem is that if one is a generator and no further investment in generation occurs then demand as it continues to increase will simply drive up what one gets for one’s existing generation. It makes good business sense. So why then does one invest in new generation until one reaches a point at which there seems to be a bit of market reaction? People start to get agitated or the Government gets agitated about the price they are paying for electricity. 
We accept that electricity prices went up too much under Labour because we were trying to tinker with a failed market model and now the National Government is trying to do the same thing. That is why Labour does not support this bill. Labour does not support this bill for a whole lot of reasons and we have a whole lot of speakers here who will go through those. 
The purpose of the bill is to regulate the electricity market. It is a huge step forward for the National Government from Max Bradford and it is a huge step forward for the Hon Gerry Brownlee who was a member of the Government that deregulated the electricity industry in this country. It has failed to deliver security of supply. That deregulation has failed to deliver efficiency gains which we see from time to time. It has failed to deliver affordable electricity to many many New Zealanders. There are elderly people in their homes today who refuse to turn on their heater. They are freezing in their homes because they are scared of what they have to pay for electricity. That is a failure. It is a failure of our system which should be integrated and should have moved further down the renewables path. 
We are lucky that we have a big chunk of electricity generation from renewables but of course Mr Brownlee is absolutely committed to digging up more coal from the national parks although he has backtracked on that for a moment and to using thermal generation to drive electricity generation forward even further. Well rather than celebrating the switch from coal to gas I ask whether we should not be going further into renewables such as more geothermal—which he mentioned—more wind and more hydro. I suggest there are many many ways that we can progress without using gas which should be used for far more productive uses in this economy. 
To go back to the bill—because Mr Chair I accept your guidance—the Minister referred to Dunedin. One swallow does not a summer make. Dunedin has always been held up as the fine example of what competition can deliver to consumers. Well not many other consumers around the country have had the benefits of any true competition. 
Hon Gerry Brownlee 
: Yes there are. 
Hon DAMIEN O’CONNOR 
: No there are not I say to Mr Brownlee and he knows that. 
Hon DAVID PARKER (Labour) 
: 
 I will first state my agreement with the Minister in the chair the Minister of Energy and Resources in respect of his comments about the effect of the emissions trading scheme on power prices. I agree with him that the emissions trading scheme has not been responsible for all of the power price increases that we have seen. We know that partly because at least in theory the electricity price is driven by the long-run marginal cost of new supply. The long-run cost of new supply in the electricity system has long foreseen the cost of carbon coming. Indeed when I was the Minister some years ago Contact Energy told me that it had already factored into its investment decisions—and indeed into its share price—the effect of the cost of carbon on electricity prices and investments. So again I agree with the Minister that although the increases of late that have been blamed on the emissions trading scheme are partly a consequence of that they are also partly not. 
Of course that begs the question that if it is not all related to the emissions trading scheme then what is it related to? The answer to that question is perhaps that there is insufficient competition. The purpose of this legislation is set out in clause 4 as: “The purpose of this Act is to provide a framework for the regulation of the electricity industry.” The reason that we need a framework for the regulation of the electricity industry compared with other goods and services that are supplied particularly when it comes to the way in which electricity is delivered is that the market has severe constraints and it is arguable that it is not competitive enough. That is why the Government intervenes and therefore regulates the market to try to enhance competition. 
The question we have to ask in New Zealand is whether after the years since we had the so-called market reforms that were pushed upon the country by Max Bradford originally there is sufficient competition to justify competition being the control on price. If there is insufficient competition to control price then we have to give up on having the competitive market as the appropriate way to control price because it is a fiction and what lies behind that fiction is excessive pricing. 
We have heard from Clare Curran about the example she gave in Dunedin. Before I move to that I say that one thing the Minister ignores in respect of the prior decade is that the major driver of the increase in electricity prices in New Zealand was the Maui gas running out. Maui gas was subject to a price control that went back to the Muldoon Government. As the gas ran out there was the need to remove the cap on the price of gas so as to encourage more exploration and that was actually the main driver of price in the early to mid-2000s. It does not explain increases in price since that date and real questions remain as to whether the market is sufficiently competitive. What is driving the Government’s behaviour now is that it has a desire for dividends from State-owned enterprises. 
The Government is not interested in real competition. It is not interested in real controls on an appropriate price for electricity. What the Government wants is dividends and capital distributions from the State-owned enterprises to the Government’s coffers. We know that because the Government has been open about it. The Government said that one of the things it wanted from the State-owned enterprises was improved financial performance. The only way we can get any significant change in the financial return from the major electricity State-owned enterprises is to put up the price. If the price is put up a higher profit is made and therefore a higher dividend can be paid to the Government. Please do not pretend that it is anything other than that. 
In respect of whether there is proper competition I am just about ready to conclude that there is not. No one can explain the enormous differential between industrial and residential tariffs in New Zealand. It is higher than anywhere else in the world that I know of; there is an enormous difference. I think that is very good evidence that there is not sufficient competition at wholesale and retail level in residential markets. 
I will give another example of where this is bad. Alexandra sits next to one of the biggest hydro facilities in New Zealand—the Contact Energy dam on the Clyde River. Alexandra pays one of the highest electricity costs— 
Jacqui Dean 
: It’s the Clutha River. 
Hon DAVID PARKER 
: What did I say? 
Jacqui Dean 
: The Clyde River. 
Hon DAVID PARKER 
: Sorry it is the Clutha River; the member is quite right. I meant the Clutha River. The Clyde Dam sits on the Clutha River. Despite that the people of Alexandra pay a far higher price for their energy than just about anywhere else in the country. I am not talking about line charges. I am talking about the energy charges. This dam is close to Alexandra and just down the road is the Roxburgh resource yet they pay a higher price for electricity. This legislation will not change that at all. 
The question was put that the amendment set out on Supplementary Order Paper 154 in the name of the Hon Gerry Brownlee to clause 5 be agreed to. 
A party vote was called for on the question  
That the amendment be agreed to. 
Ayes 68 
New Zealand National 58; Maori Party 5; ACT New Zealand 4; United Future 1. 
Noes 52 
New Zealand Labour 42; Green Party 9; Progressive 1. 
Amendment agreed to. 
A party vote was called for on the question  
That Part 1 as amended be agreed to. 
Ayes 68 
New Zealand National 58; Maori Party 5; ACT New Zealand 4; United Future 1. 
Noes 52 
New Zealand Labour 42; Green Party 9; Progressive 1. 
Part 1 as amended agreed to. 
Part 2 Electricity industry governance 
The CHAIRPERSON (Hon Rick Barker) 
: We are now debating clauses 9 to 72 and schedule 1. 
Hon DAVID PARKER (Labour) 
: 
 Part 2 sets up the electricity industry governance and creates a new authority called the Electricity Authority which effectively replaces the Electricity Commission. We should not fool ourselves that this makes a substantial difference to competition in the market. It does make a difference in that it takes away some of the functions that one would think need to have some governance like how clean our electricity is a focus on renewables and a focus on the efficiency of use. Those sorts of functions are stripped out of what used to be called the Electricity Commission and by and large they are not replaced in the new authority called the Electricity Authority. I cannot understand the logic for that step backwards and I ask the Minister in the chair the Hon Georgina te Heuheu to explain why the Government calls that progress. 
But more particularly I am interested in what the Electricity Authority will be doing that the Electricity Commission could not do in respect of setting market rules that will improve competition in the market. That is what the Hon Gerry Brownlee told us from the chair just some minutes ago. He said that these changes will reduce the pressure on prices by improving competition. I cannot understand how that can be. I cannot see anything in Part 2 that materially changes the authority’s powers from those of the existing commission. I come back to the issue that I started to address in the discussion in the first part of the debate: how can the Minister do anything but conclude that we do not have real competition in the electricity markets? 
I refer again to the example that we have not had a response from the Government on yet in respect of Alexandra power consumers. I expect this issue will have been raised by Jacqui Dean who I see is in the Chamber. 
Jacqui Dean 
: Because they sell to Transpower. The member knows how the market works. 
Hon DAVID PARKER 
: That is not right. No that is not how the market works I say to Jacqui Dean. Transpower does not buy any power; not one kilowatt except for the power in its head office mainly. Maybe Transpower has a wee bit of power in its head office but it does not trade in power. I say that Ms Dean has that completely wrong. Transpower transmits power. People buy services from Transpower which provides the grid and electricity companies use that grid to transmit power. I am afraid the member knows absolutely nothing about the way the electricity market works. It is no wonder her constituents come to me instead of to her and complain about the ridiculously high tariff that they have to pay in Alexandra. 
The reality is that Alexandra sits next to the Clutha River. Nearby is one of the biggest dams in New Zealand the Clyde Dam and 10 kilometres in the opposite direction the Roxburgh Dam generates probably 100 times the electricity demand of Alexandra yet Alexandra residents pay amongst the highest tariffs in the country for each kilowatt hour of power that they use. I ask Ms Dean to explain that to me. If the market works why do Alexandra residents who are so close to the resource that generates the electricity pay such a high tariff for their electricity? 
When I was the Minister of Energy this issue used to vex me. I used to ask the officials to explain why the tariff per unit of electricity is higher in Alexandra than it is in other places that are further away from hydro dams. An adequate explanation was never given. I was always nervous that the reforms from Max Bradford did not produce a sufficiently competitive market to constrain electricity prices as evidenced by the fact that residents in Alexandra which is next to the hydro stations pay more for their electricity. I am not talking about their lines charges; that is a different issue. They pay really high lines charges as well partly because they are a geographically spread population. But in respect of their energy use they pay more. What in this part will constrain that problem? 
Jacqui Dean 
: What did Labour do about that? What did the previous Minister do about that in his 9 years? 
Hon DAVID PARKER 
: I say to Ms Dean that I am ready to conclude that nothing in this legislation will constrain that. In fact what is happening here is smoke and mirrors to cover the National Government’s demand for higher dividends from the State-owned enterprises. There is no real constraint on power prices. 
Hon NANAIA MAHUTA (Labour—Hauraki-Waikato) 
: 
 I have lodged Supplementary Order Paper 163 which has a particular emphasis on the role of the Electricity Authority. I draw the Committee’s attention to the Supplementary Order Paper and its intention. My amendment to clause 17 of the Electricity Industry Bill would insert the words “and environmental sustainability” after the words “efficient operation”. The intent of clause 17 as it stands is missing looking at how environmental sustainability can be taken into account in terms of the work and role of the authority. The authority can play an important role and from what we have heard from the Minister of Energy and Resources other than citing an intention to have increased investment in geothermal energy we need to look at the whole investment landscape of non-thermal energy sources and what can be done about leadership in that area. I believe that by including that amendment the Government would be sending a positive signal of leadership in that it would be looking at the whole integrated way in which energy is generated from mainly non-renewable sources. That is certainly my intention going forward. 
My amendment to clause 18(1) would add other functions to the Electricity Authority first inserting paragraph (k): “to ensure that electricity is produced and delivered to all classes of consumers in a fair manner:”. My intention in tabling that amendment is to ensure greater fairness across the sector. There have been a number of contributions from members about price differentials between residential or domestic users vis à vis industrial users. The authority can play a strong role to ensure that there is greater fairness in price setting and Labour believes that the Committee could give its attention to that in making amendments to the bill. 
Second paragraph (l) requires the authority “to undertake monitoring of environmental impacts of electricity generation and ensure that an environmentally sustainable approach is taken in the development of electricity generation.” That amendment refers in part to the point that I made earlier. When we think about how energy is generated in our country we see that there is far too much reliance on the thermal generation landscape. Certainly Labour believes that renewables are the way forward that leadership must be given by the Government and that it needs to be clearly set out in a bill like this one. It is Labour’s intention to go through in some detail the various debates and outline the reasons why we believe that the Government must give leadership. 
I was heartened to hear the Minister say that increased investment in geothermal is a good thing but we cannot leave it to chance. We have to be really firm that the Government should direct greater geothermal investment. In fact we can be the leading edge in the international landscape in terms of our contribution in geothermal energy; that is what the Government should do. More important with regard to our natural resources we can play a key role in increasing our commitment to renewable energy generation and leading-edge technology in that area. That is a bigger debate than is afforded by this bill but it is the type of future and vision that Labour sees going forward. It is simply not correct for the Minister to say that Labour wants to go back to the position that we were in. The world has moved on; Labour has recognised that. We know that the future requires a stronger emphasis on environmental sustainability and that energy generation has to take greater account of renewable sources of generation. That is the future. Leadership must be shown in that area; the Government cannot simply leave it to chance. The role of the Energy Authority if it is to be as the Minister has outlined should be to ensure environmental sustainability in the setting of the electricity generation market. 
I want to speak briefly with regard to the authority given that the previous speaker David Parker eloquently raised a number of issues about the role of the authority. I want to come back to a number of other Supplementary Order Papers but for the purpose of these clauses in Part 2 I just highlight that the role and function of the authority is somewhat narrow and I believe that including the amendments in my Supplementary Order Paper will set the authority on a landscape of looking at where New Zealand is best headed in terms of energy generation. That is the kind of future that New Zealanders want to see and they know that it requires leadership. We cannot leave the State-owned enterprises to their own devices to go down a path without some direct guidance from the Government and the Minister in charge. The role of the authority will be paramount to that given that the Minister has delegated to the authority a number of roles and responsibilities. 
For that purpose I am hopeful that the Committee will consider those particular amendments to clause 17 and 18 to be positive ones that will achieve that objective. Kia ora. 
CHRIS HIPKINS (Labour—Rimutaka) 
: 
 I am happy to take a call on Part 2 “Electricity industry governance” and in particular I want to talk about the establishment of the Electricity Authority and the regulatory arrangements that are in place. I start by acknowledging the comments the Minister made about what Labour would do and whether we think that everything is perfect as it is operating now. The clear answer is that it is absolutely not. Generally speaking we agree that the electricity market has not lived up to expectations set about 12 or 14 years ago when Max Bradford first established the market through the Electricity Industry Reform Act 1998. So definitely it does not work. The issue therefore relates to the fact that the electricity market did not live up to expectations and it raises the question of what we can do to make sure that it operates more effectively given that we cannot go back. There is no way to go back to what we had before so we must ask what we can do and where we can go from here. 
The previous Labour Government decided that the establishment of the Electricity Commission to provide much more oversight to the electricity industry was the way to go and Labour still believes that. We still believe that the electricity market needs to have a body that provides much wider oversight and that deals not just with the pure functioning of the mechanics of the market but also with issues of affordability sustainability and security of supply. So the three planks that Labour put forward are security of supply sustainability and affordability of pricing. Does Labour think that the Electricity Authority as constituted by this bill will deliver on those things? The clear answer is no. 
Under this bill the Electricity Authority’s objective is to promote competition in reliable supply by and efficient operation of the electricity market for the long-term benefit of consumers but I do not think the Electricity Authority will be able to do all of those things. 
This bill transfers the approval of Transpower’s grid upgrade plans away from the Electricity Commission as it is now to the Commerce Commission. I think that is quite a significant move. One of the reasons that I am concerned about that is that we need overall coordination and an overall approach to the electricity industry. This bill continues to fragment everything in the same way that the Electricity Industry Reform Act deregulated the market in the late 1990s. I do not think that this legislation will lead to a more effective operation of the electricity market. When it comes to the grid upgrade we have to consider the alternatives to approving a grid upgrade. We can do that effectively only if we consider all of the other elements of electricity generation like greater efficiency in the use of electricity and demand-side reduction which relates not just to efficiency but to reducing demand. We need more effective distribution of electricity generation so that we do not have to rely on transmitting electricity from the South Island to the North Island when it is raining a lot or the other way when it is not. We need to consider all of the alternatives to a grid upgrade. The Commerce Commission will not be able to do that; it will have a much narrower focus. So I am concerned that transferring that authority from a body that has a wide overview of the electricity sector to one that is very narrowly focused will not help the Government to meet the objectives that it is setting out. 
The promotion of energy efficiency is transferred to the Energy Efficiency and Conservation Authority. Once again I come back to the idea that electricity efficiency cannot be addressed on its own without reference to other parts of the puzzle like transmission distribution pricing and effective operation of the market. We need to consider efficiency as part of a wider overall package. One of the concerns I have is that the Energy Efficiency and Conservation Authority will become a small body on one side that deals with electricity efficiency and the rest of the electricity sector including the Electricity Authority will therefore think it is not part of their purview. Actually electricity efficiency and the efficient use of energy has to be integral all the way through the electricity system. It cannot simply be parked off to one side with the Energy Efficiency and Conservation Authority. I agree that some streamlining could be done but this bill goes far too far by transferring all of that responsibility purely to the Energy Efficiency and Conservation Authority. 
Another part of the bill that I am concerned about relates to the Minister of Energy and Resources and the Minister of Consumer Affairs being the final arbiters on all issues of fairness. That is concerning because ultimately it will mean that for consumers who are concerned that the market is not operating fairly in that power price increases are not fair the only people they will be able to go to under this legislation are the Minister of Energy and Resources or the Minister of Consumer Affairs. That places a huge burden on the Ministers. It also means that a consumer who wants to complain is less likely to make any traction. Ministers are notoriously difficult to pin down at the best of times. They will not have the time or the resources—and the public will not have access to the Ministers—in order for the system to operate effectively. 
The Electricity Authority established under this bill will not have any responsibility for environmental sustainability. The Government says that it is still committed to the target put in place by the previous Labour administration to have 90 percent renewable electricity in New Zealand. This bill states that the Electricity Authority will have no regard to that and no role in ensuring that happens. So when will it happen? It will not simply happen miraculously. It will not happen by being aspirational and talking about it. We have to put some incentives in place if we want there to be more renewable electricity which was one of the things that the previous Labour Government was focused on. We were focused on ensuring that our electricity system was more sustainable and that there was a higher reliance on renewable electricity. The Minister of Energy and Resources acknowledged that fact in the brief contribution he made just a moment ago. He talked about the fact that there was more renewable energy generation. He talked about geothermal energy generation in particular. When the previous Labour Government was in office there was a big investment in wind generation and geothermal energy. 
In New Zealand we rely on and take for granted our hydro system. It is the backbone of our entire electricity system. We are very fortunate that over the last year or two it has rained quite a lot so we have not had any risk of electricity shortages. Gerry Brownlee I am sure like all Ministers in the previous Government gets the hydrology summary on a daily basis and goes through the changes in lake levels overnight to see whether they are tracking up or tracking down. For all of the time that he has been the Minister of Energy and Resources the hydro levels have been fine. He has had a dream run in that regard whereas Pete Hodgson and David Parker had a bit of a nightmare scenario when it came to rain not making it to the right places in the country. That was a key contributor to why we had those energy savings campaigns from I think 2001 to 2003. 
Overall we cannot ignore the environment when it comes to our electricity system. The Electricity Authority not needing to have any regard to the environment whatsoever is a very retrograde step because we are dependent on the environment when it comes to our electricity generation. If we want to focus much more on renewable energy and if we want to hit that 90 percent target of renewable energy generation which the Government talks about then obviously we will need to continue to focus on the environment and on making sure that our electricity comes from renewable sources. 
I want to talk about the issue of stability of power prices which the Minister raised. Under this legislation the Electricity Authority will have no responsibility for considering issues of power prices at all. Gerry Brownlee’s response to that is that if power prices are going up people can just switch power companies. In Gerry Brownlee’s world when it howls with rain people go outside to look at their meters to see how much electricity they have used and then they go back inside and look on the Internet to see which power company will give them the best price. In Gerry Brownlee’s little fantasyland consumers are supposed to be doing that on a daily or weekly basis. In reality I ask who is going to do that. I ask who will actually monitor their electricity price on a daily or a weekly basis. It is not realistic. In fact it is realistic only if we move to the type of model set up by Meridian Energy’s subsidiary Powershop where people engage in the market and buy electricity on a “pay as you go” basis. The Powershop people thought that this bill was a bad idea until they were muzzled by Gerry Brownlee and told that they were not allowed to speak about it any more. They had to take down blog posts that criticised Gerry Brownlee and this legislation. The Powershop model is actually quite innovative and provides additional choice for consumers but we should not overlook the fact that for most consumers the idea that they will be checking their meters reading every day or every week going on the web finding out what the lowest power price is and then switching power companies all the time is simply not realistic. It is a joke. 
Hon SHANE JONES (Labour) 
: 
 I stand to add further fuel to our words of opposition to the Electricity Industry Bill. Part 2 of this bill reminds one of moving electrical deck chairs on the base of a waka that is going to sink. Despite these changes in institutional positions deep down the underlying question that every New Zealander is bedevilled by remains unanswered. This bill will not lessen the differential between what we as garden-variety Kiwis pay for power and what manufacturers and a host of other industrial users pay for power. Neither will it lessen the cost the burden that every New Zealander faces in relation to their power bills. 
The restructuring options that Mr Brownlee has brought to the Chamber began with his musings in the Commerce Committee back between 2005 and 2008. He organised a body of work to take place to find whether there was a better way to squeeze more dough and efficiencies out of the State-owned enterprises. He focused on the energy State-owned enterprises. I suffered for a short period of time with my presence on that committee whilst he was the chair. He is a jolly fellow; however he completely misunderstands the deep problem here. The problem is that we have reached a point in New Zealand at which these institutional changes of a filigree nature are not going to resolve the underlying problem. The underlying problem is that the notion of competition for this essential service has not worked since the time of the 1990s. I personally look forward to the day when power is surrendered back in this direction away from the bureaucrats and away from the staff who run the State-owned enterprises who are largely beholden to no one. It is an actual fact that there is more accountability and more interest in the career of an ordinary civil servant than either responsibility or responsiveness from the people who run those companies the chief executive officers the staff members—I will not comment on the boards of directors because they have recently changed as a consequence of Mr Brownlee’s purge. I might give them an opportunity brief though I hope it is to prove themselves. But the real force blocking the types of changes that my colleagues refer to are the people who man—or should I say people—the positions inside these institutions. 
There will be no change to price. There will be no change in relation to the quality or the volume of competition which these sets of changes are based on. Will this organisation be more efficient? Will the existence of two quangos improve upon what the earlier organisation is doing? No. Why? Because broadly speaking we have always had at least two options: keeping the old model which was destroyed by Max Bradford or going far right out as the kaumatua of the House the Hon Roger Douglas whose hair has turned from grey to white over the last week or three would say—a complete sale of those assets into private hands and in that way achieving the sorts of efficiency outcomes we require. Naturally we will never agree to that. 
So the test is not so much about the effectiveness of each provision; it is about whether this rearrangement actually delivers a cheaper service. No it will not. Will it make the institutions more responsive not only to the consumers but to their proxy—this House? Unfortunately for the people of the land their interests are being mangled and mediated through the Government over there and I hope after recent events that it does not last too much longer. The push that we had which has unfortunately been marginalised in this bill was to enhance the importance of ensuring that the supply of energy and the pace at which it is used is used at a level of greater efficiency thus reducing the level of burden and impact on the sources from which we draw our energy. This is not going to change that. I repeat again that the level of interest and motivation within the bureaucracy of the various energy companies for achieving those kinds of outcomes is somewhere near zero. 
Hon DAMIEN O’CONNOR (Labour) 
: 
 I confess to not having been on the Finance and Expenditure Committee but I think that anyone who picks up the Electricity Industry Bill which is quite a substantive one has to have an interest in it. The industry and electricity itself affect each and every New Zealander whether they be in industry a pensioner or someone who just wants the comfort of nice underfloor heating in their bach by the sea. Whatever it is it is really important to get this legislation right. 
Clause 9 of Part 2 lists the industry participants. Back in the good old days people understood that we had increases in electricity prices—there was no doubt about that—but there was security of supply and we had an integrated system. There was basically ECNZ and people had a local lines company that they dealt with. They knew what they paid and some of them had to guarantee the price because they had had a line extended to their place. We have now moved into the new era of user-pays and the market etc. and if people read through the list of industry participants they will start to get worried. For example industry service providers are industry participants and the layers of people who will be in this new electricity system—this wonderful new market that National is trying to create here—are listed in clause 9(2) as being: “(a) a market operation service provider: (b) a metering equipment provider: (ba) a metering equipment owner: (c) an ancillary service agent: (d) a person that operates an approved test house: (e) a load aggregator: (f) a trader in electricity:”. The list goes on and on. I guess all of those people will take a little slice in terms of costs or profit and ultimately the consumer will pay. The more complex we make a system—and this is exactly what is going on here—the more costly it will be. 
There is of course an industry code and clause 11(1) states that industry participants must register and comply with the code. We understand the need for a code for the building industry given that the National Government’s attempts to deregulate it back in the early 1990s led to leaky homes in this country. It did not have an adequate code because it thought that the market would deliver and the market failed to do so. I say to National members that this is another classic example of tinkering around with a failed model. 
Industry participants have to register and they have to comply with the code unless they are exempt from the obligation to register as set out in clause 12. Clause 12(1A) states: “The Authority may grant an individual exemption to an industry participant only if the Authority is satisfied that … (b) exempting the participant will reduce overall administration and compliance costs.” What a bizarre statement that is. I hope that the Minister in the chair can answer our concerns about that because exempting anyone from any code would reduce compliance costs. If that is a qualification for a person to seek an exemption then will everyone be exempt? Most people would probably say the authority would have its costs reduced which is what I think the intent is here. But I thought we had a user-pays regime here: if we had a code and people were obliged to commit to it then they would keep to the costs of doing that and in that way make sure that the costs were kept low. 
This is complex legislation. It is a band-aid to try to patch up a failed structure in electricity in this country and most New Zealanders understand that. It does not matter where we go and it does not matter whom we speak to because most people understand that the electricity structure in this country needs major reform. We have acknowledged that. We have to make some major changes and tinkering as Minister Brownlee has done here in my view will just lead to a more complex more costly and more ineffective way of governing electricity supply generation and efficiency. The one goal that we should all focus on is making better use of energy and electricity in this country. I do not think that this bill will help in that direction at all and it would be great to hear an explanation of the reason for that. 
AARON GILMORE (National) 
: 
 I want to spend a little time talking about some of the interesting statements we have had across the Chamber. Mr Jones who did not sit on the select committee when the Electricity Industry Bill was being considered talked about the fear and loathing of this bill and the worries about it. I think Mr Jones is a very good member of the Parliamentary Rugby Team but that shows he knows nothing about electricity. Mr O’Connor whom we have just heard from was also not on the select committee and is also a wonderful member of the Parliamentary Rugby Team but also showed that he did not know much about this bill. We heard from Mr Hipkins who talked of worries about the environment concerns about the new part and issues of the authority not having a role to do with the environment. That shows that Mr Hipkins has not read the bill either and it is beholden upon me to correct a few people on some of the misapprehensions that exist. 
Clause 20 allows a power to come forward for the Minister to give requests to the authority to do anything that he or she may like which might be environmentally related or related to pricing or another review. Another key aspect is the change in the role of the authority. I have had the misfortune of working in the energy sector both as an adviser and as a supplier to the industry in terms of cables in particular. I worked for a major supplier to the energy industry that was one of the major players. One of the issues in the energy sector is the big confusion that we used to have with the commission. The commission grew from about 20 staff to huge numbers over a very short period of time and the budget grew to about $50 million as I understood it. There was $50 million for the bureaucracy. People were writing reports for the sake of writing reports to give to the person in the next department to justify quality or price. To me that was pretty much a waste of time and effort and we saw that. 
What we have now is a greater focus by an authority. We will have the Electricity Authority which will have some aspects of environmental oversight. Indeed there will also be more detail around the use of the Resource Management Act. But the promotion of energy the issue that members on the other side of the Chamber seem to be worried about—those energy ads that we see on TV and such things—lo and behold will now be done by the Energy Efficiency and Conservation Authority because that is what it was set up to do. We have taken that away from the Electricity Authority and we have focused it more and given more control over what those roles will be. I think that is a better way to do things because we do not have the left hand and the right hand arguing with each other; we have an entity set up to focus on what makes sense. One focuses on energy efficiency and one focuses on the governance and administration of the industry. 
One of the factors that we are worried about and we have talked about some of the roles and aspects under Part 2 is the issue of security of supply and the fact that we have not had enough generation capacity built in the last few years. In the last 2 years there has been a bow wave of new generation build but for many years we had a focus on not having new generation build approved because it got stuck in those huge infrastructure bottlenecks commonly called the Resource Management Act and the Electricity Commission. What we have done is refocus the Electricity Authority to separate out what it is good at and what it is not good at. That will allow and help new generation plant to be built quickly. 
It will lead to a lower price rise path over the next few years as the issues around promotion are being separated off and instead of being one big massive amalgam of bureaucracy roles and tasks will be broken up into those entities that make sense. And that is an absolutely critical aspect. 
Under Labour prices went up by 72 percent. 
Hon Nathan Guy 
: How much? 
AARON GILMORE 
: By 72 percent in 9 years. Do members know what prices have done in the last 2 years? 
Hon Nathan Guy 
: What? 
AARON GILMORE 
: They have gone up by about 4 percent. That shows that some of the things we are doing are working. The intention is to sort out the bureaucracy and allow more building of generation plant in particular geothermal plant to put thermal generation back on the curve and put in place greater incentives and money. Today we announced the investment into new marine energy arrangements and that is a good thing. It is future technology as we bring on the new curve of technology for the energy sector. That is an important role for the Electricity Authority to take. 
All that members on the other side of Chamber tend to worry about is creating more bureaucracy. We have heard that a Supplementary Order Paper has been put forward by the Hon Nanaia Mahuta which will mean more bureaucracy and control on the Electricity Authority and that is the last thing we need. We know after 9 years of Labour that more bureaucracy did not work prices went up renewable energy went down and carbon emissions went up. It did not work. All we want to see is that this bill after a long review process is put forward. We want a very tightly focused Electricity Authority with a very tightly focused role that separates out those things. I think that is a good thing. 
CHRIS HIPKINS (Labour—Rimutaka) 
: 
 There was far too much material in that speech from Aaron Gilmore on the Electricity Industry Bill; I do not think I will be able to get through all of it. I was interested to hear Aaron Gilmore describe himself as a major player in the electricity industry. I think the State-owned enterprises regard themselves as major players in the electricity industry; I am not sure that anybody would ever have regarded Mr Gilmore as a major player in the electricity industry. I know of course that in his little world he invented electricity and we congratulate him on that! We are most grateful to the people of Christchurch for delivering him to this House so we can all benefit from the huge knowledge he brings! 
I will talk about a few of the things that Aaron Gilmore spoke about before I talk about the Electricity Authority. Mr Gilmore talked about new generation getting stuck in the Resource Management Act. I wonder whether he could give us an example of an electricity generation project that has been stopped by the Resource Management Act. 
Aaron Gilmore 
: I can give you many. 
CHRIS HIPKINS 
: There are none. He cannot come up with a single one. I have plenty of time. I ask the member to name one—any one will do. 
Aaron Gilmore 
: I can give you many. 
CHRIS HIPKINS 
: Come on then. Name one. Aaron Gilmore says the Resource Management Act is responsible for bogging down all the electricity generation but he cannot name a single project that was delayed by the Resource Management Act. 
Let us be clear about what the Resource Management Act does when it comes to electricity generation. It means that if a generator wants to dam a river or build a wind farm in someone’s backyard the people who will be affected get a chance to have a say. Aaron Gilmore thinks that is a bad idea; I do not. I happen to think that if there is to be a major infrastructural development that will impact on rivers on people’s backyards or on the environment New Zealanders should have a chance to have a say on that. It is a disappointment that the National Government and people like Aaron Gilmore do not seem to think that is the case. 
Aaron Gilmore talked about a lower price rise path. Is that not a major turn-round from National’s pre-election rhetoric about lowering power prices for New Zealanders? At meet the candidates meetings up and down the country National candidates gave people the impression that if they elected a National Government that was ambitious for New Zealand somehow the power prices would come down. They are not talking about that any more now that they are on the Treasury benches and are driving around in their BMWs. Nowadays they are talking about a lower power price path. 
Aaron Gilmore claims of course that power prices have not increased as much under the National Government. There are two reasons for that—two big reasons. The first is that it has rained quite a lot. When the hydro lakes are full the power price does not go up as much. If there is lots of water hydroelectricity is actually quite cheap. National is claiming credit for the rain. These days Gerry Brownlee tries to claim responsibility for an awful lot of things but I do not think he can claim credit for the rain. 
The second reason is that the Maui gas issue has largely been addressed. The Maui gas price was kept artificially low by a long-term contract entered into many decades ago. 
Aaron Gilmore 
: Before you were born. 
CHRIS HIPKINS 
: I am almost certain it was before I was born. That artificial restriction on the price of gas has now come off. As the field diminished the restrictions came off. New gas is coming online and that is a good thing but the new gas is more expensive than Maui gas. That has been one of the biggest contributors to the increase in electricity prices over the past decade. That issue had largely been dealt with and the flow-on effect had largely come in by the time National took office. National members cannot claim credit for the fact that that issue was all dealt with under the previous Labour Government. 
I come back to the Electricity Authority and to some of the mechanics of the authority. Then I will talk about the code and in particular some of the issues that could be addressed. The first thing I want to talk about is the make-up of the Electricity Authority. One thing I am concerned about is that the way the authority has been established and will function means that consumers particularly domestic consumers do not get a look-in anywhere. Nowhere in the make-up of the Electricity Authority—or in its functions really—will the views of domestic consumers be sought. They will not have an avenue to complain or to go back to the authority when they think the electricity market is behaving unfairly. That is one thing we think is wrong. 
The domestic consumers are the ones who are being done over. Let us look at the power price path. There have been massive increases for domestic consumers in the last decade or so but the price for commercial and industrial users has not gone up by as much. Domestic consumers have been done over with power price increases but for commercial and industrial users the price increases have been nowhere near as much. The Electricity Authority will not be able to do anything about that. 
There are some ironies in this bill as well. Gerry Brownlee came to the Chamber and told us that the bill is all about increasing competition. One of the things this bill does is entrench Transpower’s role as the system operator. Currently Transpower is the system operator on contract with the Electricity Commission but the Electricity Commission could change the system operator if it chose to do so. This bill effectively entrenches Transpower as a monopoly as the system operator. In a bill that is supposed to increase competition the Government is entrenching the monopoly Transpower has as the system operator. 
Hon David Parker 
: What sort of incentive is that to reduce costs? 
CHRIS HIPKINS 
: That is a very very good point made by my colleague David Parker. There will now be no oversight by a Government body of Transpower in its role as the system operator. There will not be the drive for efficiencies that there could have been. The Electricity Commission will not be leaning on the market operator to make sure that there are increases in efficiency. That is another problem I have with the bill. 
I will talk now particularly about the industry participation code. The relevant clause that deals with the industry participation code is clause 35. It talks about what the code may contain. Clause 35(1) states: “The Code may contain any provisions that … are necessary or desirable to promote any or all of the following: (a) competition in the electricity industry: (b) the reliable supply of electricity to consumers: (c) the efficient operation of the electricity industry: (d) the performance by the Authority of its functions: (e) any other matter …” etc. 
One of the things that submitters argued was that the Electricity Authority—the Electricity Commission as it is now; the Government effectively—should be taking a much more proactive position when it comes to smart meters. The Government has dragged its heels on this issue. I think that everybody at home will be asking why they should have any confidence that the Government will use this code to deliver a better deal for consumers when there is a really obvious issue that it could pick up right now and deal with— 
Hon David Parker 
: The Parliamentary Commissioner for the Environment has reported on it. 
CHRIS HIPKINS 
: The Parliamentary Commissioner for the Environment has already given the Government the report telling it how it could be done and the Government is ignoring it. The Government could pick up the issue of smart meters and immediately deliver something of real benefit to consumers. Instead it is turning its back on it. Gerry Brownlee is ignoring that issue altogether. 
As a result electricity companies up and down the country are installing dumb smart meters that do not have the technology that they could have if a standard was in place. Also they are installing smart meters that are unique to individual suppliers and that is a major problem. At my house which I moved into a year ago the meter was installed by Genesis but I have my power with Meridian Energy. Meridian Energy cannot access the technology in the smart meter that is in my house. It still sends somebody to my house once every 2 months to do a manual power reading because the technology being installed is not universal. There is no universal standard. If Gerry Brownlee wants to promote the ability of consumers to switch power companies and reduce costs clearly that is something he could do straight away. It would mean that if I decided that Genesis Meridian Energy or whoever I was with was not the best company for me I could switch to another company. It could still tap into the smart meter technology that I had and it would not need to send someone around to my house to read the meter manually every 2 months. 
That is a bugbear as well. My electricity usage changes from month to month as it does for many New Zealand households. The estimate reading is never anywhere close to what I have used. It is either wildly over or wildly under the electricity I have used. New Zealanders up and down the country face that problem when they have estimate readings every second month. All of that can be done away with if a smart metering system is put in place and properly regulated. But instead the Government is not doing anything about it so the electricity companies are installing dumb smart meters where the system behind them is proprietary to the company that installed the meter which will dampen down competition. 
What faith should New Zealanders have that the electricity industry participation code that will be legislated for in this bill will be effective when the Government has already turned its back on a major issue on which it could have delivered some real benefit to New Zealanders? 
Hon Shane Jones 
: Copped out. 
CHRIS HIPKINS 
: It has chosen to cop out on that and not follow up on it. Smart meters are the way of the future. The Government could do that now. 
Hon DAMIEN O’CONNOR (Labour) 
: 
 My colleague Chris Hipkins raised some very important issues— 
Hon Shane Jones 
: As always! 
Hon DAMIEN O’CONNOR 
: —as always about some of the technical issues in relation to smart meters and the tools that will be available or not available and used or not used in the future. We hope that they will be used. 
I want to focus on the issue of structure. The Electricity Authority will be a key player in whatever may happen in the future. Mr Gilmore said earlier that this will mean there will be better control on prices in the future. I would like to go back and refer to a submission made to the Finance and Expenditure Committee. I was not at the committee but Contact Energy—a major player—confirmed in its evidence that it will need to continue to raise its retail prices by up to 5 percent per annum if it is to continue to invest profitably in new generation capacity. That is what it said. Five percent per annum is scary for New Zealanders on a fixed income who face a cold winter. So where do they go? 
The major players might say if we pick up on that issue that they could make reasonable profits and do not have to make huge profits so maybe they do not have to go to 5 percent. But this National Government has said to each and every State-owned enterprise that it must lift the level of return on its investments. What does that mean? It means that the State-owned enterprises have been instructed to make more profit for return to the consolidated account. So any kind of vain hope that we will see moderate levels of profits is just that—a hope. Contact Energy itself said at the select committee that it would probably raise prices by up to 5 percent. I hope that does not occur. 
I will move back to the authority— 
Hon Shane Jones 
: We have to go forward; we never go back. 
Hon DAMIEN O’CONNOR 
: My colleague says we should never go back and that is right but the National Government does need to look at the mistakes it made in the late 1990s and learn from those mistakes so that it can go forward and improve matters in the future. When National was in Opposition it railed against the Electricity Commission. National members opposed it in every speech in this Chamber on every piece of legislation. They said it was unnecessary interference but now we have an authority. What is the key difference between the commission and the authority? I looked at the objective set out in clause 17 in Part 2 and I saw it states: “The objective of the Authority is to promote competition in reliable supply by and the efficient operation of the electricity industry for the long-term benefit of consumers.” Those fairly laudable honourable and useful objectives are not too different from those of the Electricity Commission. 
Of course the previous Labour Government attempted to control the market and we did a fair job of bringing in some necessary regulation. But we did not do what we had hoped to do and I do not think that the authority will do it here. If we go back to the independence of the members of the authority the previous speaker Chris Hipkins said we would not have a guaranteed consumer advocate here. That is true. Reference was made in terms of membership to someone who might raise consumer issues but the bill clearly states that no one on that authority will be able to act on behalf of any particular organisation or industry group. That means that New Zealanders on a fixed income be they members of Grey Power or beneficiaries will not be able to have a champion on the authority because the legislation prevents that. 
What we have seen in the past through the market is that the big players have been able to negotiate lower rates for electricity so their increases have been moderate. But the little players the average New Zealanders the people who do not have a lot of muscle or leverage other than through fair representation in this House through the Labour Party will not have a say. The price increases for those people as quoted by Mr Gilmore and the Minister time and time again have been very high. We do not want to see a repeat of that whereby the industry players effectively ratchet up the cost to the small players because they do not have the ability to do anything about that. This authority will not give them any better representation or ability to reduce the price increases. 
Hon DAVID PARKER (Labour) 
: 
 In Part 2 we have clause 9 which states that we will have statements of Government policy that the authority must have regard to. What statements of Government policy have we had since the election? We had one arm of the Government apparatus—I forget whether it was Mr Whitehead at Treasury or Dr Bollard at the Reserve Bank—say that on the basis of the recession there was a need to have decreased profit expectations on the part of the big power companies. There were to be decreased profit expectations on the part of the major infrastructure companies including—and I think they were named—the power companies. Of course the Government owns the power companies because they are State-owned enterprises. If the Government had wanted to achieve less pressure on power prices it could have explicitly said to those State-owned enterprises that it wanted lower dividends; that it did not want them to pay as much money into the Government coffers. Did it? No it did not and that shows how hollow its rhetoric is about its desire to control power prices because that is all it needed to do. It could have said to Genesis or Meridian or Mighty River Power or all of them exactly what the Labour Government had already said to Transpower which was that it did not want as much dividend. The Labour Government did do that in respect of Transpower and the National Government could do that in respect of the major generators if it wants to take pressure off power prices. So all this talk about having a statement of Government policy that the authority must have regard to when undertaking its functions is not worth a tin of fish. We know that the Government had the lever. We know that the advisers to the Government at the highest level—and from memory I am pretty sure it was Dr Bollard at the Reserve Bank—said that the Government needed to take pressure off consumers by not ramping up prices profits and dividend flows to the Government. 
The Government has control of two-thirds to three-quarters of the electricity market. The Government-owned State-owned enterprises—Genesis Meridian and Mighty River Power—produce two-thirds to three-quarters depending on the year of New Zealand’s electricity. They are dominant. If the Government had just given them the direction that it did not want as big a dividend then electricity prices would not have gone up as much. I still call on the Minister in the chair the Hon Phil Heatley to take a call and explain how it is that this authority will control prices in a way that the existing commission does not because that is what Gerry Brownlee says is its purpose. He says that the authority will be more effective at controlling price. Well how? It is not apparent from the legislation. We know that the Government has ignored this opportunity to say that it does not want more dividends. In fact it has said the opposite. The Minister for State Owned Enterprises Simon Power has said to these companies that the Government wants greater efficiency and higher dividends. In reality the only way we can get significantly higher dividends from the electricity State-owned enterprises is through price increases. They do not have very high variable costs in terms of their labour inputs so a change to their salaries policy does not make much of a difference to their profitability. The only way they can increase their profitability and dividends is by increasing prices. 
So I ask the Minister to explain how this new authority is going to have a different outcome in respect of market competition from what the Electricity Commission has had. If it is not going to have any difference I cannot see how the Government can rely upon it to control prices any more than the existing commission can and the Minister is already on record over many years as saying that the existing arrangements were not sufficiently controlling price increases. So if there was not sufficient price control through the market mechanisms that were operationalised under the Electricity Commission and if we are moving to a new authority what is it that is different that changes that status quo? The answer—because we will not hear a call from the Minister on this because there is no answer—is that there is no change to the powers of the authority compared with those of the commission in terms of market outcomes. 
I ask the Minister in the chair to stand on his feet and explain how it is that different rules pertain to the authority and give them more powers than the Electricity Commission had to constrain prices. The answer of course is that there are no extra powers. The answer is that this legislation will not properly constrain price increases. 
Hon NANAIA MAHUTA (Labour—Hauraki-Waikato) 
: 
 The one Government member Aaron Gilmore who got to his feet and made a few comments needs to be challenged on a number of fronts. First of all that member said that Labour increased the amount of bureaucracy in the system. Well we had an Electricity Commission and it will be replaced by an Electricity Authority a Security and Reliability Council and other advisory groups. If that is not more bureaucracy I do not know what is. But that member clearly did not read the bill. In fact what the Government has done is get rid of the Electricity Commission and replace it with an authority a Security and Reliability Council and other advisory groups—more bureaucracy. That member was Aaron Gilmore. Furthermore he went on to say that the Resource Management Act stopped a number of projects. The Resource Management Act under Labour gave community groups the right to have a say on developments near them and I certainly support that. But the Government of that member Mr Aaron Gilmore has through its streamlining legislation removed the opportunity for some community groups to have a say when they otherwise would have had that opportunity. That is what that member is actually supporting so he needs to be challenged on those two issues because I think he was erroneous in his presentation of those issues to the Committee. 
But I have concerns about the authority as well. I have concerns in terms of its limited scope; I have said previously in the Chamber that the Supplementary Order Paper I am bringing to the Committee is to ensure that the scope of its consideration can be broadened to include environmental sustainability. I do not think that that is more bureaucracy. In fact I think that that is more responsibility in terms of the nature and role of what the agencies are there to do. I do not believe that the authority in its current scope is adequately equipped for looking at the whole landscape of electricity generation or for ensuring that greater leadership is given on that front. 
My colleague Chris Hipkins raised a number of very good points especially about the smart meters initiative which points to another amendment I have in my Supplementary Order Paper. I have had a presentation from my local lines company WEL Energy that talks about smart meters that not only talk to the customer but also enable better management of electricity use across the grid. In time this is what the future will look like. I certainly endorse the report of the Parliamentary Commissioner for the Environment and what she promoted in terms of smart meters. That is the technology that we need to look towards. 
I believe that Chris Hipkins is absolutely correct in saying that the Minister should give direction on this front: we should have a smart grid we should be promoting smart meters and we should start now and not wait albeit what we have now are dumb meters and some lines companies like WEL Energy that I believe are taking an innovative and positive step forward in this area because they know what the future landscape will look like. I hope the amendment I have put forward will be considered in that light and will be supported because we know that consumers want to be able to regulate the amount of electricity they use by having better information. 
Some appliances are smart appliances and we are learning from what is happening in Australia where they are already developing smart appliances. It will be only a matter of time until those appliances come here to New Zealand. So having a smart meter in the house where consumers can look at the amount of power they are consuming and regulate themselves I think is a good thing. I think it is really positive when that information is given back and when the utilisation of energy across the grid can be better managed at another level. It is real-time information that is critical in order to make this a great success. 
A number of other matters have been raised in the Committee that I think the Minister in the chair the Hon Phil Heatley needs to take a call on. He has stood only once to respond to some very serious questions that have been raised by members of the Labour team; they deserve to be answered but sadly they have not been. 
Hon SHANE JONES (Labour) 
: 
 These speeches are focused on Part 2 of the Electricity Industry Bill unlike the earlier contribution which was both unwise and irrelevant from that member residing in— 
Aaron Gilmore 
: Canterbury my friend. 
Hon SHANE JONES 
: Otautahi. I will not repeat the foolishness of what he said in the sense that he is blaming all sorts of ills on the Resource Management Act. No if any applicant wants to dam a river and gain further access to what is rapidly becoming a Maori resource that of geothermal energy then the process has been laid out. We would not know that from the Maori Party whose members are busily lost talking about pearly shells on the seashore—the seashore that they will never ever own despite having misled our iwi—but I will say more on that at a later time. 
If any applicant wants to come forward and seek statutory consent I say that the process has been laid out. Indeed members on this side of the Chamber agree that there was worth in improving the ability of central government to handle consent applications that related to resources that might have cut across multiple catchments. However that does not overcome a number of the weaknesses in this bill. I will direct our attention to what my colleague Mr Parker was talking about which are the statements of Government policy. It seems to me that the Minister of Energy and Resources with his booming rhetoric left the impression with his colleagues that these changes would significantly improve the ability of industry participants to offer power in a more sustainable fashion and at a more efficient price. But this bill is inversely related to his rhetoric. In addition to that the legislation goes on to say that the Minister may request a review. Part 20(2) states that the Minister upon requesting a review “must consult the Authority”. That got me thinking about who would be on that authority. Who will be the individuals deemed fit proper and suitably skilled— 
Aaron Gilmore 
: Shane are you looking for a job? 
Hon SHANE JONES 
: I can assure the member that after the meltdown of ACT and the taint that will attach to his party the tail-enders on his list will be looking for a shovel to dig up the offal in Christchurch and he will be in the queue. I daresay that the level of interest he shows in this bill should be improved as he may be fortunate enough—in the unfortunate event that this bill is passed—to be looked upon by the Minister for State Owned Enterprises. 
The membership of the authority says that people must have electricity industry experience consumer issues experience and experience in business generally. Given that the Electricity Authority will be a pivotal feature in the new infrastructure it seems to me that this may be an important issue for the Minister. Labour would not use this process because we would repeal this wretched legislation. We would not allow this legislation to continue. It has been brought into this House on the strength of loud rhetoric but it changes nothing in terms of the underlying causes. Those causes are causing a great deal of discontent amongst the voting public whether they be of a manufacturing or a residential nature. 
When the Minister of Energy and Resources makes a request for a review he or she—whoever it is; it is unlikely to be the current Minister for much longer—must consult the authority. Will the authority have staff or a governance board that will be capable of pointing out the obvious foolishness as we have seen earlier in terms of this Minister and what he has tried to do? Will it be independent? No the legislation sets up a seemingly independent board but this board can be crushed on a whim—driven no doubt by politics or vested interests—that may have set upon the Minister. Although the Minister may consult the authority that Minister will get his or her way. How will the authority carry out any level of independence if indeed the actual members who are on the authority are not independent? Therein lies the difficulty with this restructuring because several organisations will require appointees. 
We have a history where people with conflict of interests have riddled this sector. That is why as I said earlier I personally look forward to the day where we no longer have this failed model of competition the constant gouging of monopoly rents and the ongoing calls from the ACT Party discredited though it may be. However I must say that the member from the ACT Party who sits in the Chamber this evening Heather Roy is not a discredited member. She is proof that her party members should stop reading books by Frederick Forsyth and should start watching  
Kill Bill 
 because in that movie the blonde came back. 
I ask how independent the authority will be and what sorts of qualities this board of governors will show. Although it will be necessary for the Minister to seek appointees we have to reflect on a deep concern that the direction this organisation will head in will depend on the blend and mix of skill of the appointees. If there is absolutely no one on the board who is either intellectually strong enough or capable of being a good advocate for mitigating measures in relation to carbon footprints fairness and sustainability measures then we will have the same tired group of people who see these energy companies as their private playground. In that sense we will not see an improvement in either price or sustainability. As members of the Committee said earlier that is why a great opportunity has been squandered here. 
I will carry on—perish the thought that anyone should think that Labour had not studied this bill to an exhaustive degree—by referring to clause 22 which pertains not to the Security and Reliability Council but rather to advisory groups. I imagine that the advisory groups will include people who have a genuine and longstanding concern about the quality of the resources that we are continually drawing upon. It will also increase the importance for Maori groups—iwi and indeed other Maori environmental organisations—to pay close attention. They are unlikely to be considered an advisory group. Quite frankly if our colleagues in the Maori Party had not been surfing on the seabed and foreshore and had focused on this incredibly important area of the development of our Maori people—the utilisation of those natural resource groups which are used for energy generation purposes—then we would have seen a specific reference regarding those hapu and those iwi whose territories are proximate either to the geothermal fields or to the rivers and lakes. Of course I would have included the wind in that list but it is being consumed by the current Minister of Energy and Resources. 
The absence of any of those Maori groups shows not only that there was delinquency and neglect on the part of our Maori colleagues in the Maori Party—and none of that comes as a great surprise to us—but also that these advisory groups are likely to be rendered useless and marginalised. There is no guarantee for the people who treat stewardship the environment and the connection between tangata whenua and their historical resources as their primary raison d’être. Those people have been written out of the script. They ought to have been included explicitly here. There lay an important distinction between our approach to energy policy and the Government’s approach. We suffered no doubts and there was no cavil on our side as to whether there should be a marriage between hard economic decision-making and broad sustainability considerations. That lay at the pith of the approach that we brought to natural resource management especially towards the end of that great reign of energy policy. It may be said that these groups the tangata whenua etc. can fit in in a generic sense but it is very important that it goes on record that the architects have failed. 
AARON GILMORE (National) 
: 
 I think it is not time to talk about blondes and  
Kill Bill  
or anything like that particularly coming from that member who has just resumed his seat Shane Jones but to answer some of the questions that have been raised. We are talking about Part 2 of the Electricity Industry Bill. A review was set up and it found that there were problems with the electricity governance arrangements. We found that the dual regulation of Transpower was not working. We found that there was a lack of independence that Ministers were meddling in governance arrangements in the electricity sector and that there was very slow progress on rule-making. So what have we got? Part 2 is about replacing the Electricity Commission with an independent authority as an independent Crown entity. It is about the establishment of a Security and Reliability Council. That is what Part 2 is all about. 
I will touch on two particular things. Firstly I will touch on the issue of smart meters which we heard about from the Opposition and the worrying fear that this bill should do more with smart meters. Well I tell members that in Christchurch where I live there are 140000 smart meters in homes as we speak with the ability to do all the swinging singing things that those members want them to do in the future when the technology is ready which I think is appropriate. We have had this debate in the House before and we decided that the best thing to do was set up the governance arrangements to allow that to occur in the future not now. The technology is not yet ready. It is an idea whose time has not yet come. 
The other good things in Part 2 are some of the changes and governance arrangements on lines companies particularly the standardisation of tariffs and the ability for less bureaucracy and how that will work. I think that is a good thing. We heard from Nanaia Mahuta the issues about bureaucracy. I understand that at its last count the Electricity Commission had about 300 staff in relation to its management. I do not think that is a good use of taxpayers’ money in terms of the spend that was occurring. That was all funded by a levy on electricity users. So electricity users were paying more money in order to set up a bureaucracy to oversee the governance of the electricity industry but effectively all it did was shuffle paper back and forth from the left hand to the right hand. We do not think that was a good idea and that is one of the reasons why Part 2 has been put into place: to tidy up the governance arrangements and make the sector work a bit smarter and more efficiently. 
I want to also quickly touch on another aspect that the previous speaker spoke about which is the issue of the appointments to the authority and the skills and expertise required. One of the issues we have is that the current governance arrangements are not independent. Effectively the Electricity Commission is not an independent Crown entity. The new Electricity Authority will be an independent Crown entity— 
Chris Hipkins 
: Where’s your proof of that? 
AARON GILMORE 
: It is in the bill I say to Mr Hipkins. The bill states that it will be an independent Crown entity. Mr Hipkins should actually read the bill and maybe get his head around what the bill says. It says that the Electricity Authority will be an independent Crown entity. It will be independent of Ministers and independent of some of the meddling that has occurred. That was one of the reasons why electricity prices went up 72 percent under 9 years of Labour. That is one of the major reasons why we have put in this thing. 
Briefly I want to touch on some of the price changes that have occurred in the marketplace to date that this bill will help enhance. Where I live in Christchurch Genesis Power is going around actively campaigning for people to sign up with it giving people $200 or $300 price discounts on the expectation of this bill coming into effect. The governance arrangements that are in this bill are more efficient and will allow more competition so that the likes of Genesis in Christchurch can compete for customers. Genesis told the select committee during the select committee process when these issues came up that it could not do a competitive continuation of those price discounts if this bill did not go ahead. That is the proof in the pudding that this bill will bring in lower price path increases and that is what this Government is all about—reducing bureaucracy reducing the price path for consumers and putting in place less bureaucracy and more certainty for those companies out there that want to invest in new generation whether it be renewable which is what we have seen in many cases in terms of geothermal and wind generation or whether it be in terms of other thermal support situations. I think that is a good thing. 
Hon DAMIEN O’CONNOR (Labour) 
: 
 If the previous speaker Aaron Gilmore insists on getting up and making a contribution on the Electricity Industry Bill I wish he would keep it accurate. He made two assertions. One was that the Resource Management Act hindered and stopped development of electricity projects but he could not name one example. He was wrong. He then got up and said that the previous Government’s Ministers were interfering in the electricity market but he could not name one incident. In fact there are many of us who wished we had interfered a hell of a lot more because that is probably what it needed. He went on about bureaucracy reducing compliance costs blah-blah-blah. I tell that member to look at what is in this bill. It sets up an authority then a code then it says that companies can be exempt from the code if they can prove that it will cost the authority less to implement which pretty much means anyone. 
Part 2 which we are discussing here sets up a rulings panel. What does the rulings panel do? This is from the Government that has made so much noise and such a song and dance about reducing compliance and regulation yet it will set up an authority and a rulings panel. What does the rulings panel do? It will “assist in the enforcement of the Code by—(i) hearing and determining complaints about breaches and possible breaches of the code;”. Let us ask why we should have this. Firstly a company can be exempt from the code. If a company is exempt from the code is it subject to the rulings panel? Does it have access to the rulings panel to take a complaint? There is no answer. The Government does not know. 
Then there is the issue of whether the Commerce Commission or the rulings panel has priority in terms of a ruling over commercial negotiations or failure in commercial negotiations. Will the Securities Commission have a part to play in this or will the rulings panel override all of that? Mr Gilmore does not know and he cannot explain that because the Government does not know either. It is setting up a bureaucracy a level of compliance and a nightmare that will just further exacerbate the failings of the market structure that National set up in the late 1990s. This is just piling bad practice after bad practice—that is the underlying belief that the market will deliver but we need all of these other institutions and structures such as the authority for a start. Never mind that National thought the commission was unnecessary; it now needs an authority then it needs a rulings panel. I ask Mr Gilmore whether if he gets up and explains what the rulings panel will do he can be more accurate than his assertion that previous Labour Ministers were interfering in the market or that the Resource Management Act was stopping or hindering the development of energy projects. 
The facts are that there were some energy projects that were subject to the Minister of Conservation’s approval and that is the way it should be. I know the National Government has indicated that it wants to take the Environmental Protection Agency’s projects of national significance and just run them through which puts at risk a whole lot of rivers in this country. Maybe that member should go to the Wild Rivers presentation at Parliament tomorrow night. We are in favour of sustainable hydro generation but if that National Government as indicated will railroad straight through all the processes for any big projects then we may see the demise of many many wild rivers in this country. That is not what the majority of New Zealanders want. We want good sustainable hydro generation geothermal wind power—renewable sources of energy. 
I come back to the bill. Having set up and got some generation we now have a belief that many generators many players in the market will deliver the most efficient and effective electricity for consumers be they big or small. I say that this legislation is basically flawed. That is why we do not support it. That is why we will continue to object and point out its failings and point out the inaccuracies when those members get up and speak on this bill. 
H V ROSS ROBERTSON (Labour—Manukau East) 
: 
 Tena koe Mr Chairman. I am thankful for the opportunity to address the Electricity Industry Bill. First of all I would like to acknowledge the members of the Finance and Expenditure Committee for the work they did in bringing this legislation back to the House and those select committee personnel who also did such a sterling job. Scrapping the Electricity Commission is a move by the Government to improve efficiency. That is a laudable and commendable thing to do but I have to say that I have seen it all before in the pursuit of productivity and best practice. It happens about every 20 years. The synopsis basically is that after a certain amount of time the officials in charge—especially if everything is based in Wellington—say: “Let’s put things out into the community where we get more direct contact and we can actually improve the efficiency of the resource we have back in head office.” Then about 20 years later they say: “Oh things have got out of control. We have to pull it all back to Wellington so we know what’s going on.” It goes on and on. 
The commentary to this bill states: “The Electricity Industry Bill seeks to reform various areas of the electricity sector and is intended to increase competition in the electricity market and ensure security of supply.” There is nothing wrong with that; it is commendable. It goes on: “The bill would modify governance arrangements in the industry provide for specific regulatory changes and alter the overall structure of the electricity sector. Specifically the bill would disestablish the Electricity Commission and replace it with an Electricity Authority”. That comes back to the whole issue of the fact that it is about productivity and the pursuit of excellence in all we do. That is important but this will not be the end. I guarantee members that in a number of years maybe another 10 or 15 we will get changes again because that is what happens. 
I want to put a number of questions to the Minister in the chair the Hon Phil Heatley. I ask the Minister what analysis has been done on the costs or benefits of the proposed relocation of roles amongst the authority the Commerce Commission Transpower the Security and Reliability Council the Ministry of Economic Development and the Minister. What analysis? I tell the Minister in the chair to get up on his hind legs and take a call instead of just sitting there and ignoring the Opposition. That is what the Minister is doing. He is refusing to acknowledge the concerns of the Opposition on this side of the Chamber who have genuine concerns and want to know why the Electricity Commission is being done the way it is. What analysis? If the Government is going to scrap the Electricity Commission and replace it with two new quangos that in itself can be seen as being inefficient. I ask the Minister to justify that to the Committee to the country and to the Opposition who want to know. What research has the Minister carried out what cost-benefit analysis has been done and what benefits are there to the consumer? Surely we want to see that we govern in the best interests of our consumers our voters because after all as members of Parliament we are supposed to be here to serve the public. I want to know whether the Minister in the chair will take a call and answer any of the questions that I have asked. I am asking those questions on behalf of my voters my people and I would appreciate the Minister taking a call because they are important issues for members on this side of the Chamber—very important issues. 
I will just finish with this because I think it is important that we read it in. We on this side of the Chamber believe that the Electricity Industry Bill fails to address the major issues facing the electricity sector. It will not deliver even on the priorities that the Government has set out for itself. In fact it is likely to exacerbate the problems we have putting pressures on supply and electricity affordability. As Opposition members looking to become a future Labour Government we are saying that we will repeal this legislation and replace it with a legislative framework that ensures New Zealanders have a secure supply that one is affordable; two is price-predictable; and three can be produced and used sustainably. Those are the concerns we have and I would appreciate the Minister taking a call and answering those questions on behalf of the people whom I represent in Manukau South Auckland. 
The CHAIRPERSON (Lindsay Tisch) 
: The question is that Part 2 stand part but before we do that we have a number of amendments— 
H V Ross Robertson 
: Take a call. 
The CHAIRPERSON (Lindsay Tisch) 
: I am going for the vote. The member should know that votes are taken in silence. He is a former Assistant Speaker; he should know what the rules are. 
The question was put that the amendment set out on Supplementary Order Paper 163 in the name of the Hon Nanaia Mahuta to clause 17 be agreed to. 
A party vote was called for on the question  
That the amendment be agreed to. 
Ayes 52 
New Zealand Labour 42; Green Party 9; Progressive 1. 
Noes 68 
New Zealand National 58; Maori Party 5; ACT New Zealand 4; United Future 1. 
Amendment not agreed to. 
The question was put that the amendment set out on Supplementary Order Paper 163 in the name of the Hon Nanaia Mahuta to clause 18 be agreed to. 
A party vote was called for on the question  
That the amendment be agreed to. 
Ayes 52 
New Zealand Labour 42; Green Party 9; Progressive 1. 
Noes 68 
New Zealand National 58; Maori Party 5; ACT New Zealand 4; United Future 1. 
Amendment not agreed to. 
The question was put that the amendment set out on Supplementary Order Paper 163 in the name of the Hon Nanaia Mahuta to clause 35 be agreed to. 
A party vote was called for on the question  
That the amendment be agreed to. 
Ayes 52 
New Zealand Labour 42; Green Party 9; Progressive 1. 
Noes 68 
New Zealand National 58; Maori Party 5; ACT New Zealand 4; United Future 1. 
Amendment not agreed to. 
The question was put that the amendment set out on Supplementary Order Paper 163 in the name of the Hon Nanaia Mahuta to clause 45 be agreed to. 
A party vote was called for on the question  
That the amendment be agreed to. 
Ayes 52 
New Zealand Labour 42; Green Party 9; Progressive 1. 
Noes 68 
New Zealand National 58; Maori Party 5; ACT New Zealand 4; United Future 1. 
Amendment not agreed to. 
The question was put that the amendments set out on Supplementary Order Paper 154 in the name of the Hon Gerry Brownlee to Part 2 be agreed to. 
A party vote was called for on the question  
That the amendments be agreed to. 
Ayes 68 
New Zealand National 58; Maori Party 5; ACT New Zealand 4; United Future 1. 
Noes 52 
New Zealand Labour 42; Green Party 9; Progressive 1. 
Amendments agreed to. 
A party vote was called for on the question  
That Part 2 as amended be agreed to. 
Ayes 68 
New Zealand National 58; Maori Party 5; ACT New Zealand 4; United Future 1. 
Noes 52 
New Zealand Labour 42; Green Party 9; Progressive 1. 
Part 2 as amended agreed to. 
Part 3 Separation of distribution from certain generation and retailing 
PESETA SAM LOTU-IIGA (National—Maungakiekie) 
: 
 I have listened this afternoon. I have listened to some pretty sour debate and I have listened to some pretty poor arguments. The Electricity Industry Bill is about reforming the electricity industry. I will just give the Opposition a little bit of history about what we are doing here and what this bill is about. This bill is in response to a review that was conducted last year. The review was done by a number of experts in the industry. The Electricity Technical Advisory Group was chaired by Brent Layton and there were a number of other industry experts like Professor Evans Miriam Dean Toby Stevenson and David Russell. 
We have heard a lot of rhetoric from across the Chamber. We have heard from Mr Hipkins that National said on the campaign trail that it would lower prices. That is factually incorrect. When I was campaigning in Maungakiekie I said to people that we would limit price increases which were prevalent under the previous Labour Government. As has already been stated by my colleague Aaron Gilmore the cost of electricity went up by 72 percent over 9 years while inflation went up by 24 percent. What does that mean? It meant that it was three times the rate of inflation. 
The CHAIRPERSON (Lindsay Tisch) 
: We are on Part 3. 
PESETA SAM LOTU-IIGA 
: I am just responding to some of the arguments— 
The CHAIRPERSON (Lindsay Tisch) 
: No we are on Part 3. 
PESETA SAM LOTU-IIGA 
: I am sorry Mr Chairperson. I will continue. This bill is about security of supply. It is about affordability and sustainability which is what Mr Hipkins has already referred to. 
Hon Members 
: What does Part 3 do? 
PESETA SAM LOTU-IIGA 
: Part 3 is right here. It is about the separation of distribution from generation and retailing. But I digress. If people think it is just National that is in favour of this reform I tell them that it is not. I quote from a  
Press 
 editorial: “Changes made by Labour”— 
The CHAIRPERSON (Lindsay Tisch) 
: I am sorry to interrupt the honourable member but the time has come for me to leave the Chair. 
Sitting suspended from 6 p.m. to 7.30 p.m. 
CHRIS HIPKINS (Labour—Rimutaka) 
: 
 I am very happy to take a call on Part 3 which we have just begun to debate following a very lively and informative debate on the first two parts. Part 3 is all about the lines companies. I think this part highlights the higgledy-piggledy mess that the National Government made of the electricity system back in the late 1990s when it tried to create an unofficial market in a situation where effectively there is a monopoly. Let us go through the history books. Before the electricity industry bill of about 1997 which I believe had the same name as the bill before the Committee there were the local energy boards which were responsible for distributing electricity to consumers and the Electricity Corporation of New Zealand generated the electricity that was supplied. 
Max Bradford decided that effectively there needed to be three main components to the market: the retailers which would sell the electricity to the consumer; the lines companies which would supply the electricity to the consumer; and the generators which would create the electricity in the first place. There also needed to be competition in those markets. Obviously in the case of lines companies it is very difficult to create a market in that area because they are monopolies. We will never have two sets of electricity lines running past every house and every business in the country. In fact we would not even want to have two. It would not make any commercial sense to have a competing electricity grid. In a country like New Zealand we are only ever going to have one electricity grid. In fact I am not aware of anywhere else in the world—someone may be able to correct me—where there is more than one electricity grid. We need to be very clear about the fact that this is a monopoly situation. The lines companies are monopolies and the transmission grid will be a monopoly run by Transpower in the case of the New Zealand transmission grid. 
If we are to say that we will have competition in the retail market and competition in the generating market there needs to be some separation between those two markets and the natural monopoly that is the lines company. So Max Bradford said that the energy boards had to decide whether they would be lines companies or retailers. If they were to be retailers then they needed to divest themselves of their lines businesses and vice versa. We therefore ended up with separate lines companies separate retailers and separate generators. Of course that did not result in what Max Bradford promised everybody. He promised them that it would lead to lower power prices. In fact we all know that over the last 12 years power prices have continued to rise by a substantial amount. 
We are now faced with deciding how to deal with this situation and what improvements can be made after 12 years of the operation of the market. Labour supports moves to get increased retail competition. If that helps to lower prices that has to be good for consumers—the ones at home who will be paying their power bills. They have seen their power bills rising and will be asking: “How can we lower our power bills? How can we get a bit more money back in our own pockets not give it over to the power companies?”. Increased competition in the retail market may well help with that. However I am not convinced that allowing lines companies back into the retail market will deal with that problem because of their monopoly status. Some of the evidence presented to the select committee was that if a lines company is allowed to enter the retail market far from increasing the number of players in the retail market in that area it could distract other retail competitors from entering that market because of the way the lines company could have a monopoly in that area in supplying both the product if you like and the delivery mechanism. I am not convinced that this will make a difference. I am not convinced this will lower the price of power. 
Hon John Carter 
: Have faith. 
CHRIS HIPKINS 
: That is what Max Bradford said I say to John Carter. Max Bradford said: “Have faith. I know what I’m doing. It’s all going to be all right. We’re going to have lower power prices.” And what happened? Power prices went up exponentially because of what Max Bradford did. He divided a monopoly. He tried to create a market where there is really a monopoly. It is very difficult to do. There can be only one set of lines and there will be only one transmission grid. Max Bradford as John Carter just said told us that we all had to have faith in the market and the market would deliver lower power prices. It did not do that. 
The question becomes: what do we do about lines companies at the moment? Do we allow them back into retailing? What other commercial opportunities are there for lines companies? Lines companies could be focused first of all on making sure their infrastructure is up to date making sure they are replacing the power lines and so on. A good comparison is with the rail industry. We sold off the rail network in 1993 under the then National Government and during that time the overhead power cables that power the rail network were not maintained at all. In the Wellington region by the time the Government bought back the rail tracks in 2003 the power network supplying electricity to the trains was so badly run down that in the last few years it has effectively had to be completely replaced. Why do the lines companies not focus on doing that on making sure that they are providing a network that will deliver security of supply to households in the future? 
We have seen examples where things have gone wrong. It took a failed D-shackle to wipe out the power supply to a large chunk of Auckland for several days. Clearly maintaining the lines is what the lines companies should be focused on. They should be focused on making sure that when people go home turn on their light switch and put a pot on the stove the power will be there—that they will be able to do those things. Electricity is so fundamental now to what we do on a daily basis. 
There are other commercial opportunities for lines companies if they want to look at expanding their businesses into other areas. There is the opportunity for lines companies for example to get involved in telecommunications particularly in broadband. There must be opportunities there if they want to get involved in broadband. I know the Government has stalled with where it is going with broadband at the moment. We are not making anywhere near the progress that is being made in Australia when it comes to broadband but that is because Australia has a Labor Government and we have a National Government. 
There are plenty of other opportunities for lines companies in terms of where they could diversify their businesses if they want. I am not convinced that allowing them to move into the retail market will increase competition. In fact as I said before allowing lines companies into the retail industry could put off other providers from entering into that market. 
To recap this bill repeals part of Max Bradford’s ideological separation of the generators the lines companies and the retailers. It allows the lines companies to enter into retailing under certain conditions. There will be restrictions on the amount of electricity they can supply and so forth. Overall however I am not convinced that it will make much of a difference. Thank you. 
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. 
Hon DAMIEN O’CONNOR (Labour) 
: 
 I rise to speak because I know that the Minister in the chair the Hon David Carter does not have a clue about this and will not get up and answer the queries put by the previous speaker the Hon David Parker. None the less I will do my very best to offer an opinion. 
Part 3 is the political part. In the late 1990s when separation was forced upon the lines companies a whole lot of staunch National Party supporters were deeply offended that although these good people had worked for their communities protected built and nurtured these lines companies—some companies taking on board generation when necessary—“Mad Max” and his mates in the National Government in the 1990s came along and said to those companies: “You’ve got to get out of that. You’ve got to separate because the market is going to deliver to you and you’re not allowed to be in both areas of the market.” And it was a disaster. Those people were deeply offended. Some of them voted for Labour and put us into power in 1999. I know they still feel deeply offended and Labour moved to address some of their concerns. I acknowledge that this bill opens up the opportunity for more of those companies to have more substantive generation and some vertical integration. I think the commentary on the bill states that it not be too much so as to allow monopolistic behaviour on the basis that the market still has to operate and deliver all these wonderful benefits to everyone. 
That aside the bill allows sensible realignment in areas and particularly in some rural areas. I know that the West Coast in particular had Westpower a wonderful integrated company. It was forced to sell out. I think that something like $40 million was realised by the community. The trust at the time asked what it should do with the money. It was a real dilemma for the people who had built up those assets to provide secure electricity to the community. There was very good infrastructure and the company upgraded the lines system. Any surplus that was generated went back into the infrastructure. It was a very smart model. None the less “Mad Max” the Hon David Carter and his cronies forced separation. The company then had to divest its generation capacity. I know that on the West Coast they got about $40 million. Then the trustees—and I say they were wrong—thought: “We don’t have a mandate to continue to manage this for the community. We’re a lines company so we must distribute this to each and every consumer.” and it did. 
Some retailers did quite well out of that distribution. Some people got $1500 or $2000—a little bonus. The money went “poof”. It was spent. Then lo and behold within a period of 2 years and when Labour was in Government I had that same company knocking on the door saying: “We need some capital to upgrade the line into the West Coast because there is going to be growth in industry” and indeed there has been. It has been an amazing success story. The point is that the stupid ideology that drove the National Government in the 1990s forced that trust to divest the generation capacity and forced it the company thought to divest the capital. So that company is now building back up. I know it will make use of this new provision because it already has some generation initiatives under way and that is great. The company will be able to align the generation and the distribution network. That is sensible but it has taken the National Government a while to learn. Its members are slow slow learners. 
Unfortunately other provisions in the Act that still rely on the market to deliver a great outcome will be flawed and will fail. But there will be some areas where I am sure that as those lines companies are still owned by the community they will for the most part manage that for the benefit of their community. Often in Wellington I am afraid to say the officials in Treasury and in the National Party do not understand that there is a huge amount of goodwill in many rural parts of the country. People do not work just for self-interest; they work for the good of their community. The people who did this through the 1970s 1980s and 1990s to build up those strong and robust lines companies distributing secure supply were deeply offended when the nerds in Treasury and the nerds run by the National Party said: “You’re going to divest this and throw yourselves out into the market.” Well I guess this is some token acknowledgment of the mistakes made then. We are allowing—and indeed the select committee raised the threshold—some vertical integration to occur and that is good. But as I said it is a sad sad state that it has taken too long. 
I read through Part 3 and I raised in the Committee debate on Part 2 the issue of the bureaucracy that we are setting up. This is the Government that decries the previous administration and all the bureaucracy and compliance costs. Under the provisions of Part 3 the High Court is now playing a part in the system. We had the authority set up then we have the rulings panel to deal with disputes for those who may or may not be using the code depending on whether they have been given an exemption and now we have in clause 85: “If the High Court is satisfied on the application of the Authority or any other person that a person has breached a provision of this Part the court may give directions ordering a person in breach to renegotiate any agreement …”. Now we have the High Court playing in the arena. 
Then in clause 87 we see a reference to the Commerce Act 1986 which is fair enough; it pervades most of our legislation. So we have the Electricity Authority the rulings panel the High Court and the Commerce Commission. What a dog’s breakfast from a Government that says it will simplify everything and will get rid of compliance. I ask who will pay for all of this. Who? It will be the consumer. Will it be the big companies? No no; they will always be able to negotiate a better deal. What about the small consumer? Who has been looking after their interests? Well the National Government never looks after the interests of the small people. Look at the tax cuts. It is $1000 a week if one is earning $1 million a year. If one is earning $30000 a year it is about $3 a week. That is what the National Government calls fair. 
Well unfortunately that is the philosophy driving this legislation also. We do not trust the complexity of this legislation to deliver fair deals and fair electricity prices to New Zealanders and certainly not to people on low incomes. That is why we do not support the legislation. That is why we will continue to point that out. I am sure that not too far down the track we will be able to say “We told you so.” The same idiots who said that deregulation and market forces would reduce the cost of electricity in late 1990s have come back to us saying that they did not really mean it. It was said at that time as justification. What we are seeing here is the Minister and National members saying that this bill will improve the electricity industry and deliver better outcomes. 
I do not believe that for a moment. I feel sorry for the officials as they have to work within the constraints of flawed ideology run by the National Government in all of these areas. I ask the Minister in the chair—a slightly smarter and higher-profile Minister Dr Jonathan Coleman is in the chair now—whether he can explain how the Electricity Authority interfaces with the rulings panel and how the High Court can intervene in the issues of separation and the thresholds around how much electricity is generated. Of course that will change from year to year I guess; I am not sure. I am not quite clear on whether the 250 megawatts is maximum capacity or is that average capacity? Maybe that is one of the questions the Minister can answer. Of course the Commerce Act 1986 is overriding all of this. That Act states that we have to make sure there is fair competition. Well it has not ensured that there is fair competition. We have had rorting we have had price gouging and it has been identified— 
CLARE CURRAN (Labour—Dunedin South) 
: 
 I am addressing Part 3 of the Electricity Industry Bill which allows lines companies to retail in their local areas. I will just reference what my colleague Damien O’Connor said about the small consumer and fair deals and electricity prices. I will also reference what my colleague David Parker said about insufficient competition in the market monopolistic behaviours and the effect on consumers. 
Essentially the way this industry will operate under this bill means that the residential cost of electricity will remain too high. Ultimately this issue is one of affordability and that is affordability in a whole range of different things. I will tell members what it is like for the people in my constituency at the moment with regard to affordability or the lack of affordability. When we think about what the potential is for where this industry could be going and for the other things that it could be doing which is also about affordability we see that there is a lot of potential. 
Today I will share with the Committee that I heard from a major social service agency in Dunedin which talked to me about what it is really like for families in Dunedin right now with regard to the affordability or the lack of affordability of electricity prices. The social service agency administers the community electricity fund that is run through the Dunedin City Council on behalf of all the local organisations. It told me that this winter it has been inundated with inquiries and queries and its staff have been working all day most days on requests from the public relating to power. It says that it is only one agency and although it sees a lot of applications other agencies are having their own appointments with citizens throughout the winter. Frequently they say that it is not uncommon for people to be coming in with power bills of more than $1000 for a month. That may sound extraordinary to the Committee but it is not; the median power price for families in Dunedin and in other places in this country that are cold in winter is about $400 to $500 a month. My colleagues have talked about the lack of ability of people to pay these bills and the indifference of the Government towards measures to address the problem. 
It is interesting that during the election campaign we had National members saying that we must lower the price of electricity but now that a bill has come into the House it will not actually address that issue at all. Many of these people are families. A number of other people are living on their own and their bills are not as high as those for families but their bills are up around the $300-a-month mark and they are on fixed incomes. The organisation that I spoke to today gives grants of up to $200 through the community electricity fund but it certainly cannot address many of these people’s needs. 
I will quickly talk about the future of this industry and address the issue in Part 3 which relates to allowing lines companies to retail in their local areas. Although Labour supports having increased retail competition we believe that allowing lines companies back into the retail sector will ignore the problems that arise out of their geographic monopoly status and it may actually reduce competition rather than increase it. One of the options that I know my colleagues have talked about is whether electricity lines companies could be the bearers of other services to households such as broadband which is probably a more efficient use of their networks. It could be about investigating and eliminating barriers to entry into the retail sector which would be a better way of introducing competition. 
When we think about the future of this industry which is a network industry we know that our networks in New Zealand are critical. The newest network that we are looking at introducing is broadband. There is support pretty much across Parliament around the importance of our new broadband network if it ever actually appears and there is a lot of talk about how that will be delivered. Several ways have been discussed by the industry about how to do that. One of them is through our national telecommunications company Telecom which is a competitive monopoly and the other way involves asking whether the electricity lines company should have a role. I will briefly address that matter because there are some signs that the electricity lines companies have a significant role to play in this and this could be about where their future lies in terms of how to deliver the newest network to the country. It would seem to be that instead of having fierce and to some extent contrived competition which is raising the price of electricity for the ordinary citizen we should look at how lines companies could have a better role in delivering broadband to the country. 
Recently there has been an announcement by the Government that could potentially be positive relating to how the lines companies can deliver broadband to New Zealand. Three organisations that are lines companies are in discussion with the Government. One is in Northland one is in the central North Island and one is in Timaru. The major issue that the country and certainly the telecommunications industry is grappling with at the moment is whether we will be looking at electricity lines companies delivering broadband or whether that will be done by a monopoly such as Telecom. 
If we are really looking at the future of how New Zealand can move forward in this area and not looking at having higher electricity prices for the ordinary citizens of New Zealand and increasing the pressure that is being put on families and our older citizens then this is the area where the Government should be. It would be good to have some response from the Minister today on that issue and on whether the Government believes that this is a viable place for it to be moving towards. 
Hon NANAIA MAHUTA (Labour—Hauraki-Waikato) 
: 
 I rise to speak to Part 3 subparts 1 and 2 which allow lines companies to retail in their local areas. If this part was considered in and of itself I can see that a number of elements would be very attractive to lines companies. In fact I expect that many lines companies will welcome the opportunity to retail in their particular area. 
I will comment briefly on what that landscape will look like. The primary motivation obviously for lines companies who get into this will be to deliver back a benefit to their shareholders many of whom are electricity users. Some companies will see quite a strong motivation to get involved and ensure that the benefits not only go back to their shareholders but strengthen the infrastructure within their local areas. 
My colleague Damien O’Connor spoke earlier and made the point that this part could well be a benefit to and opportunity for rural communities. I expect that it could be but it will not be through increased competition in some of those areas; it will be because there is a strengthening of the role of lines companies. In Hamilton for example I am sure the same could be said: energy networks will relish the opportunity to retail in that area. More significant I can see that they will invest back into infrastructure. Lines companies are critical to ensuring that local infrastructure is invested in and is strengthened to be able to deliver electricity to households. In fact again they could actually be the critical part in ensuring that hospitals have improved infrastructure in their areas as well. 
If this part was considered in and of itself I can see that a lot of benefits and opportunities could be delivered to the consumers who are also shareholders of particular lines companies. However—and this goes to the substantial debate—nothing in the Electricity Industry Bill deals with the issue of fairness to consumers. We have raised that issue consistently through the debate and we believe that the Government should recognise it. Overall there is a huge differential between domestic and industrial tariffs and there is a huge differential in terms of the increases on domestic households. We know that there is pressure already on their household prices and the bill overall does not address that. We would like the Minister in the chair the Hon Dr Jonathan Coleman to simply respond in terms of showing how the bill will address these types of differentials ensuring fairness exists in the market and explaining in some detail how competition will deliver back a benefit to the domestic consumer. That is the nub of what this bill will be tested on—whether it will deliver those types of benefits. 
As I said overall there can be a lot to gain from increased retail competition but we should not see it as the answer because it exists within a wider matrix of changes that the Government is introducing. Those changes do not address the issue of environmental sustainability of electricity generation do not address the issue of fairness to consumers in terms of pricing and do not give any sense about whether the Government will show leadership in tackling the huge differentials between domestic users and industrial users. We think that that will become the litmus test for reform in the electricity sector. 
More important going forward the Government has not signalled either in the draft energy strategy or the Energy Efficiency and Conservation Strategy what it will do to continue to show leadership in investing in renewables. We put that major challenge to the Government to ensure we will have a future where we rely more on renewable energy rather than on thermal generation. Also in the area of security of supply I think it is notable in this part of the debate that the Government has increased the effort in terms of investing in the upgrade of the grid through Transpower. I definitely applaud that investment; I think it is long overdue. 
I come back to Part 3. As I said Part 3 cannot be considered in isolation from the whole bill. Overall the bill will be tested on the areas I described. It will afford opportunities to particular lines companies; I do not doubt that. I think those lines companies can see the advantages in playing a strengthened role in the retail sector which will deliver some gains to their shareholders who can also be consumers. It will also reinvest back into the lines network and infrastructure but lines companies have been doing that. 
My colleague Clare Curran raises a very important point about ensuring that lines companies are part of the broader roll-out of broadband but that brings its own difficulties. We do not want to get to a situation where when we are looking for an integrated seamless roll-out of broadband we have no strategic overview of how it will work in practical terms across different lines companies especially when we are talking about the roll-out of rural broadband. There are resource management issues that need to be addressed I suppose and there will also be some more technical aspects of that particular task to consider. 
Notwithstanding the issues I have raised a number of challenges and pertinent questions have been put to the Minister by members of the Labour team. Although the Minister in the chair may not be able to respond I hope the questions are being noted so that when the responsible Minster sees fit to respond to those questions he is able to do so. We believe that at the end of the day the litmus test for this bill in terms of the structural reforms and the governance solutions it is proposing will be whether it delivers cost benefits to domestic consumers lessens the differentials between domestic consumers and industrial consumers and ensures predictability of pricing over the long term. 
I hope and I sincerely believe that the Government will think about showing leadership in terms of the sustainability of electricity generation in our country because that leadership is sadly missing. Fairness is missing in this bill and it needs to be addressed if the Government is serious about the issues that matter to New Zealanders. What hurts people in the pocket will be the real test. Electricity prices are far too high—far too high—and it cannot continue. 
STUART NASH (Labour) 
: 
 I stand in the Committee stage to talk about allowing lines companies to retail in their local areas. There are only two points I would like to make with regard to that so this will not be a long call. The first point is about competition and the second is about monopolistic powers. I am all for competition especially in an area that has the potential to drive down prices in an absolutely essential service in this time of recession when families are really really suffering. On 1 October power prices will increase by at least 2.5 percent in line with GST. There are families out there as my colleague Ms Curran highlighted before who are facing $1000-a-month power bills. 
Hon Nanaia Mahuta 
: How much? 
STUART NASH 
: $1000 a month. That is unbelievable and totally unsustainable. Any form of competition that would reduce power bills of that level—in fact power bills of any level—is something I am all for. Let members make no bones about that. The Labour Party is all for competition in the areas that open up markets and reduce costs to ordinary hard-working consumers. But I do have one concern about this. I wonder whether the Electricity Industry Bill will actually allow that. I note that the ministerial review concluded that lines businesses should be able to retail in their local areas but I also note that it said there were monopolistic concerns. 
Let me give an example of this concern. The first-ever political campaign I was involved in was something called the Auckland Energy Consumer Trust. This is the trust that owns Vector power lines. I stood on a ticket called Powerlynk with some very able local body politicians and we ran a policy of 100 percent community ownership. When a lot of the power companies and lines companies had been disestablished and put into community trusts and had been sold the Auckland Energy Consumer Trust remained in community ownership. It was a great model because it gave dividends to every single consumer. A cheque went out every year. It was a wonderful dividend that helped a lot of people who were really struggling to pay their power bills. But what happened? A right-wing organisation stood against us—it was part of the Citizens and Ratepayers Now ticket—and said: “We will not sell your power lines.” We said: “Hold on a second. Something is going on here. They said part-privatisation was not bad but their campaign slogan is that it will not sell your power lines.” What did they do? They got elected on that promise and they immediately sold 24.9 percent of Vector. I will tell members what happened when they did that. The sort of non-profit benefits that go with 100 percent community-owned organisation were really scaled down. I am talking about things like undergrounding. Undergrounding costs a lot of money. There is a non-profit motive but it adds significant benefit to the communities. That was scaled right back because as soon as we sell down these organisations into commercial ownership the profit motive becomes the top priority. 
That is what we do not want to see here. I have huge concerns about this. Within the Powerlynk ticket on which I ran we had philosophical debates about whether we should push for the lines company to enter the retail market. It was our fundamental belief and it was Labour’s fundamental belief—we were in essence a Labour-led ticket—that a monopolistic organisation could be created and it would in fact not create benefits but take benefits away from consumers. Once we get a natural monopoly especially in a country the size of New Zealand in an area like electricity where there is a small population and wide geographical area then the barriers to entry become incredibly high. So we do not necessarily get competition; competition disappears and it is not replaced. Once that monopoly is there it is extremely hard to control prices because without competition the only thing we can do is legislate. So I have grave concerns about this and they have been spoken about by my colleagues. 
The Hon Nanaia Mahuta spoke about the lack of infrastructure development as did Chris Hipkins. We have talked about—I do not know when it was—a D-shackle failure and this was in terms of a lines company that was not putting sufficient effort into maintaining the infrastructure that carried electricity to the city of Auckland. 
In the First World country we pride ourselves as being if we do not have the electricity infrastructure running at 110 percent then there is no way in hell we will ever get overseas investment coming into this country to provide the direct foreign investment for jobs and the necessary resources to grow this country sustainably and that is why I have concerns. Vector should concentrate—lines companies should concentrate—on providing an exceptionally good service to retailers but if that disappears if the lines are blurred if they are owned by the same company or the same group of shareholders there are monopolistic concerns and that is not good. 
In conclusion I will sum up my two points. First I am all for competition in a market where it has the potential to reduce prices. That is of absolute necessity to consumers and I am absolutely for competition. My second point is that I do not think that Part 3 will provide that level of competition going forward. If this measure is implemented then in 10 years’ time we could well see a monopolistic structure that drives away competition rather than create it. When we drive away competition and end up with a monopoly we have no power whatsoever over pricing for hard-working struggling New Zealanders who need electricity to heat their houses to run their water cylinders and to live. Thank you. 
The question was put that the amendments set out on Supplementary Order Papers 154 and 166 in the name of Hon Gerry Brownlee to Part 3 be agreed to. 
A party vote was called for on the question  
That the amendments be agreed to. 
Ayes 67 
New Zealand National 58; Maori Party 4; ACT New Zealand 4; United Future 1. 
Noes 52 
New Zealand Labour 42; Green Party 9; Progressive 1. 
Amendments agreed to. 
A party vote was called for on the question  
That Part 3 as amended be agreed to. 
Ayes 67 
New Zealand National 58; Maori Party 4; ACT New Zealand 4; United Future 1. 
Noes 52 
New Zealand Labour 42; Green Party 9; Progressive 1. 
Part 3 as amended agreed to. 
Part 4 Industry participants and consumers 
CHRIS HIPKINS (Labour—Rimutaka) 
: 
 I am very happy to take a call on Part 4 which essentially deals with security of supply. I will run through some of the provisions contained in this part but first of all I want to pick up on some of the comments the Minister of Energy and Resources made in his very brief remarks when we began the Committee stage. The Minister talked about security of supply and the fact that we had several years of shortage during the tenure of the last Labour Government. Of course I contend that that was all the previous National Government’s fault because it created the mess in the first place when Max Bradford scrambled this particular egg. What is really interesting is that Gerry Brownlee used the prospect of further supply shortages as one of the justifications for some of the changes in this bill. 
Let us go back to what Gerry Brownlee’s ministerial review said about the prospect of security of supply issues. The review stated that overall it is clear that sufficient investment has taken and is taking place in new generation. So there is no justification to say that there will be security of supply concerns because sufficient investment is not taking place. That is the first point and I think it is really important that we do not buy into the rhetoric that there will be huge shortages because insufficient investment in new generation has taken place. 
The ministerial review also found that it is in the market’s best interests—in the interests of retailers and generators—to talk up the prospect of shortages and to run savings campaigns in order to lower spot prices. It is in their financial best interests to create the impression amongst consumers that there will be a shortage so that they can keep spot prices lower. In fact that is also the position of some of the larger users. They wanted to see spot prices lowered as well. That basically means that we create a perception of a shortage in order to move the burden of lowering spot prices on to domestic consumers. I do not think that is necessarily right. We have to keep that in mind when we talk about security of supply because it is in the market’s best interests to create an impression that there will be security of supply. 
This bill removes the reserve energy scheme put in place by the last Labour Government—the Whirinaki power plant. Let us think about that for a moment. As we have mentioned time and time again on both sides of the Chamber the weather plays a huge part in the New Zealand electricity system. Hydro lakes and wind make up the bulk of our electricity supply. Therefore it is prudent to have some reserve capacity that can be called on when the hydro lakes are low when the wind is not blowing and when the pressure really comes on to have some reserve supply. The incentives for the market to supply that reserve energy simply are not there. If people want to build a 400 megawatt power plant they will want it to be operating the whole time. They will want to get the maximum dollar they can get out of their investment. They will not invest in a 400 megawatt power plant that will sit there and be used only occasionally. There is no incentive for the market to do that. The Labour Government recognised that need and invested in the Whirinaki reserve energy power plant. This Government is doing away with that. It is giving the power plant to Meridian Energy and that creates some other issues. Meridian has built its entire branding and its entire strategy on being 100 percent renewable but it is being made by this National Government to take a gas-fired power plant. With the stroke of a pen suddenly Meridian’s clean green 100 percent renewable brand is down the toilet because the National Government is forcing it to take a gas-fired power plant. That measure also removes the reserve energy scheme altogether. If I was the chief executive of Meridian and the Government had made me take this power plant I would probably sell it. Why would Meridian want to keep a gas-fired power plant if it was going to fundamentally undermine everything that the company had set out to do in establishing itself as a 100 percent renewable electricity company? It is quite conceivable that the Whirinaki power plant will end up being sold if Meridian is forced to take it over which is exactly what this bill does. It is something we need to consider very carefully. The ministerial review recommended doing away with the reserve energy scheme. We do not agree with that so we do not agree with Part 4. 
I want to talk about the compensation regime that this bill puts in place. The Government has said that if there are going to be shortages and conservation campaigns in future years then electricity companies should have to pay consumers some compensation. The Government has fixed that compensation at the grand sum of $10 a week per account holder. If consumers are asked to reduce their electricity consumption they will get $10 a week in compensation. Actually the Finance and Expenditure Committee was presented with some quite compelling analysis that showed that in the context of the huge profits that electricity companies can make when there are shortages of supply $10 a week per consumer is trifling. Being required to pay consumers that amount of compensation will not incentivise electricity companies to invest in conservation schemes. So I ask how we can make sure that electricity companies are investing in sufficient generation capacity to ensure that there will not be supply constraints in future years. Actually this bill goes the opposite way and this debate forces it to go the opposite way. 
TrustPower said in its submission to the select committee: “The uncertainty created by the industry shake-up”—that is Gerry Brownlee’s industry shake-up—“was likely to have a chilling effect on private electricity generators’ willingness to invest in new electricity plant raising the prospect of shortages again within a decade.” So the Government says that it wants to have a market but the market is constantly being rearranged all of the time. That removes security from the system and therefore disincentivises generation companies from putting in place the investment that we need in further electricity supply and that is more likely to result in security of supply pressures. 
I want to move to what Ari Sargent the chief executive of Powershop said in a blog before Gerry Brownlee made him take the blog down. Ari Sargent was talking about the Tekapo A and B asset swap which is dealt with in Part 5 but has direct reference to Part 4 which talks about security of supply. Ari Sargent said: “This puts the security of supply at risk and will see a change in river operation that will increase wholesale prices and prices to consumers particularly in the South Island”. So that is from Powershop and I place quite a lot of store in what it is saying. It is one of the most innovative electricity retailers in New Zealand and I think that it has established a really exciting market model. It is saying that the changes in this bill will not actually increase the security of supply in New Zealand. Of course it is not surprising that we are having this debate because once again we are seeing more and more evidence of Gerry Brownlee pushing ahead with something that has no analysis to prove it will work. No analysis has been put forward of whether the requirement for generators and retailers to provide compensation during conservation campaigns will actually reduce the need for those conservation campaigns in the first place. No evidence has been put forward to suggest that that would be the case and in fact some submitters argued quite strongly that it would not be the case. As I have said it may be more cost-effective for generators and retailers to compensate consumers at that trifling sum of $10 a week than to face high spot prices. 
It would be more worthwhile if we are concerned about security of supply to make sure that we are facilitating improvements in energy efficiency. The introduction of smart meters as I have mentioned before is one way that we could absolutely focus on energy efficiency. Potentially if we get smart meters in every house and if we get them operating effectively it could result in a whole new very different model for the way that the electricity market currently operates. It would potentially allow consumers and retailers—and the retail model would have to change—to buy their electricity at off-peak prices when the demand was lower and spread their electricity usage particularly if they had smart meters that would talk to appliances for which the technology is potentially there. It could result in much better use of electricity. 
The question was put that the amendments set out on Supplementary Order Papers 154 and 166 in the name of the Hon Gerry Brownlee to Part 4 be agreed to. 
A party vote was called for on the question  
That the amendments be agreed to. 
Ayes 67 
New Zealand National 58; Maori Party 4; ACT New Zealand 4; United Future 1. 
Noes 52 
New Zealand Labour 42; Green Party 9; Progressive 1. 
Amendments agreed to. 
A party vote was called for on the question  
That Part 4 as amended be agreed to. 
Ayes 67 
New Zealand National 58; Maori Party 4; ACT New Zealand 4; United Future 1. 
Noes 52 
New Zealand Labour 42; Green Party 9; Progressive 1. 
Part 4 as amended agreed to. 
Part 5 
Hon DAVID PARKER (Labour) 
: 
 Part 5 is the most ridiculous part of this bill. It forces one electricity company namely Meridian Energy Ltd to give up some of its power stations on the Waitaki River and transfer them to Genesis Power Ltd. That means that we will have less efficient use of the resource. 
Hon John Carter 
: Rubbish! 
Hon DAVID PARKER 
: “Rubbish!” we hear. It is absolutely clear that we will have less efficient use of the physical resource. Instead of having the coordinated use of that water sequentially through the different power generation facilities on the Waitaki system—from Tekapo through the canals through Ohau through Benmore through Aviemore and through the Waitaki system—separate owners will be running separate dams on that system. There will be coordination issues when it comes to the release of water. There will be different players having control of those different assets and they will have different views about what they should be doing with the water and when they should be doing it. 
There can be no more efficient use of that water resource than having it under the control of a single player. If our market is so inept and uncompetitive that we have to cause changes that will cause resource inefficiency in order to have more market competition then we have to conclude that the market is so fundamentally flawed that we should ditch it. 
It is ridiculous that we will use the resource for the generation of power less efficiently in order to get a more competitive market outcome. It is a nonsense that we will use our physical resource—that is the hydro resource—less efficiently in order to try to engineer some improved market outcome and this change was panned virtually universally by the submitters who came to the Finance and Expenditure Committee. Whether they were generators retailers industry commentators or experts in the operation of the electricity system they said virtually universally that this was crazy. Submitters said it did not make sense to use the physical water resource less efficiently in order to have a market outcome. If that water is used less efficiently it means that some of it will be used when it should not be. Some of it will be used when it is worth less and when it should be saved for use at the most crucial times. 
If our market is so uncompetitive that we have to contrive its improvement through the forced sale of assets in a nonsensical way from Meridian Energy to Genesis then we will ruin the Meridian brand which is currently 100 percent renewables in respect of its own generation. Why would the Government do that? I think the reason for that is bloody-mindedness. Gerry Brownlee is not standing up for renewables—and New Zealand has a magnificent advantage in renewable resources for our electricity generation. 
Gerry “Sexy Coal” Brownlee—that is what he called himself in that video before the last election—does not believe in renewables. I doubt that he believes in his heart that climate change is a real or proven threat to the world. He would rather see more thermal generation. In fact rather than celebrating more renewables he is always out there digging up a bit more coal trying to mine national parks or trying to bring forward gasification of coal or more sources of coal all of which produce greenhouse gas emissions—which are not produced by renewables. 
I know that the board of Meridian the chief executive of Meridian and Meridian staff think it is absolutely abhorrent that they are being forced to take thermal generation assets that produce greenhouse gas emissions. Meridian Energy has branded itself on being 100 percent pure and clean but Gerry Brownlee’s definition of 100 percent pure and clean is obviously similar to the view of the Minister of Tourism and he does not mind besmirching this brand by forcing this ridiculous obligation to take thermal assets. Gerry Brownlee then modified that obligation right at the end I think and said it could just put the water assets on Genesis but not require it to take the thermal. Is that correct? [ 
Interruption 
] I am not sure either. Perhaps another member can clarify that for me. But the idea that Meridian should even have to consider doing that was ridiculous. 
I return to the first point I was making. It is an absurd idea that this Parliament should legislate to reduce the most effective use of the Waitaki water for hydroelectric generation. It defies belief that the Government would be so stubborn as to persist with this ridiculous plan against the advice of virtually every submitter to the select committee. This measure will not reduce the tariffs for residential users. It will not narrow the overly large gap between residential and industrial tariffs in New Zealand. 
This legislation will not cure the problem of the higher tariffs that are paid by places like Alexandra which sits right next to the generating facilities on the Clyde Dam the Roxburgh Dam the Teviot scheme and all the other schemes in Central Otago. It will not cause the tariffs paid by residential consumers in Alexandra to be closer to those paid by consumers who are further away from the physical generation assets but who happen to live in the biggest centres of population. 
Part 5 will not fix that problem. Nothing in this part will substantially limit the price increases that consumers are facing. It will not materially improve competition and there is absolutely no justification for using the physical resource less efficiently in order to try to engineer some improvement in the market. In fact it is an acknowledgment by the Government that the market is seriously flawed otherwise why would it inflict upon the system a decrease in the efficiency of the use of the physical resource? That must be its only justification. It is not a good enough justification but it must be the only justification—that there are significant market imperfections currently. We know that in the absence of a proper market there is insufficient constraint on price increases and residential consumers effectively bear the brunt of that through the higher tariffs they pay through this system which is not sufficiently competitive. 
It is time for us to acknowledge in my opinion that the Bradford reforms have not worked. They plainly did not work in terms of lines. I think we can conclude that the system is broken. We can reach that conclusion on the basis of the differential between residential and industrial tariffs which is out of whack compared with the rest of the world and the fact that we have such a lack of competition at least in significant parts of the market throughout New Zealand and perhaps in the whole of the residential market. This tinkering with the market rules will not work and this part of the bill exemplifies how ridiculous it has become. 
I think it was Michael Cullen who occasionally used the example of people making more and more complex changes in order to justify their view of the world. People used to do that when they held the view that the Earth was the centre of the solar system. The different orbits of everything else in the solar system was explained so as to justify the belief that the Earth was the centre of the solar system when in the reality the sun is the centre of the solar system and everything revolves around the sun. 
Well it is a bit like that in the electricity market. We have had to bolt on regulation and we have more regulation coming. We now have these ridiculous changes in respect of the use of the Waitaki power assets and still the Government will not admit what is becoming more and more obvious to every residential consumer in New Zealand. We do not have real competition. We actually have the Government plundering the dividends. 
RAHUI KATENE (Maori Party—Te Tai Tonga) 
: 
 I am very pleased to take a call on Part 5 of the Electricity Industry Bill. As the member for Te Tai Tonga I really need to talk about Waitaki because the waters of Waitaki from their source at Aoraki through to the coast are of paramount importance to Ngai Tahu. 
Ngai Tahu of course have put in their submission on this part of the bill. When the bill proposed to transfer ownership of both Tekapo A and Tekapo B power stations to Genesis Energy from Meridian Energy Ngai Tahu went on to high alert. Aoraki is the sacred mountain range and Waitaki is the ancestral river and they are both fundamental to the identity of every Ngai Tahu person. As such Ngai Tahu as tangata tiaki have inherited responsibilities to manage the natural resources across the takiwa. Indeed it is extremely timely to be considering this issue in advance of the report of the Land and Water Forum which will be released tomorrow for the mana of Aoraki and the waters of the catchment are an integral element of the tribal economic cultural and spiritual values of Ngai Tahu. 
We come then to the issue of asset reconfigurations specifically related to the Waitaki power scheme. In the Maori Party manifesto  
He Aha Te Mea Nui? 
 we make a commitment to whanau hapu and iwi as tangata tiaki to assist them to take whatever measures are necessary to ensure the well-being and future good health of the environment. In particular we note that issues involving water including water rights and privatisation must include the mana whenua. 
So we now come to Supplementary Order Paper 121. Te Runanga o Ngai Tahu in its submission made the case very clear that shareholder Ministers should enter any processes related to existing arrangements involving Ngai Tahu in the spirit of good-faith Treaty partnership. The submission recommended a joint approach by Meridian and Genesis to address Ngai Tahu matters in the Waitaki catchment and wanted to encourage the Government to recognise the importance of a proactive working relationship between both of the State-owned enterprises and Ngai Tahu. A key recommendation put forward by Ngai Tahu was that the relationship should provide a forum to resolve historical issues of cultural displacement in the Waitaki. I want to place on record the Maori Party’s support for both Te Runanga o Ngai Tahu and the local runaka sitting down with the Government to work through the complexities and consequences of the asset reconfiguration provisions in respect of the Waitaki power scheme. 
This is particularly important in light of new clause 124A “Purposes of sections 124B to 124H” in Supplementary Order Paper 121. New clause 124A(b) states that the purpose of sections 124B to 124H is “to maintain current effects on the environment and rights and obligations in respect of the Waitaki power scheme”. This is where the key issue falls for us. From what Te Runanga o Ngai Tahu has reported the so-called current effects on the environment of the Waitaki power scheme are actually detrimental to their relationship with the Waitaki River. The challenge therefore for this House is to seek to improve the environment within the catchment rather than merely maintaining the status quo. 
We remind the Committee of the position put forward so eloquently by Ngai Tahu that any discussions involving mana whenua—both Te Runanga o Ngai Tahu and the local runaka—must be entered into in the spirit of good-faith Treaty partnership. We look forward to a commitment from the Minister of Energy and Resources as to how the advice of Ngai Tahu will be taken on board. 
Hon NANAIA MAHUTA (Labour—Hauraki-Waikato) 
: 
 I listened very carefully to the contribution from Rahui Katene and I acknowledge that local member for Te Tai Tonga for putting forward the views of Ngai Tahu. If that were to be the case then I am sure the Maori Party would vote for the Supplementary Order Paper I am proposing. 
Supplementary Order Paper 163 delays the commencement of the asset swaps by 1 year to allow more time for a thorough cross-benefit investigation and for the types of issues that that member raised to be considered prior to the asset swaps. The Supplementary Order Paper changes clause 124(2) to ensure that that investigation can take place. I am also putting forward an amendment on the asset reconfiguration review. I propose that the Electricity Authority must undertake a review of the effect of the asset reconfiguration on retail electricity prices for consumers for much the same reasons that I raised previously in the debate. This is a key part of the bill and a fine example of where politics got in the way of a good idea. 
It seems like the Minister of Energy and Resources sat down and drew on a piece of paper that it would be nice to shift this there and that it would probably have this kind of effect. There is no real evidence to substantiate or justify that cost benefit. In fact all the submissions that came before the Finance and Expenditure Committee said that the cost benefits are unproven. The member opposite Peseta Sam Lotu-Iiga may shrug and disagree but he needs to read the submissions. Given that he did not finish his last contribution in this debate I challenge him to argue this in more depth. 
It is of great concern to us that the Minister is proposing an asset swap of this nature when the benefits of such a swap are unproven. Many submissions did not think it would deliver the gains that the Minister says it will. We have concerns about the Waitaki catchment because the way in which electricity generation occurs is part of an integrated system. The submissions raised the importance of that more eloquently than I. 
Peseta Sam Lotu-Iiga 
: Which submission? 
Hon NANAIA MAHUTA 
: I tell the member that the Institute of Public Administration New Zealand objected to this. If that member were to read the submissions he would see that there were a number of them that did not support the asset swap. I challenge that member to get up and explain in detail why his Government is proposing that this is such a good idea when so many submissions objected and raised concerns about its benefits. If he is shrugging and saying no then let him stand up take the next call and say why his Government is proposing that this is a good thing. I would love to hear that debate. 
I was heartened to hear the very genuine concerns of Rahui Katene the good member for Te Tai Tonga. I hope that the Maori Party supports my amendment. It would be a bit of a taihoa signal—tatari me korero ano tatou. It is the type of critical decision that needs further thought. That is the key point of my contribution on Part 5: it needs further thought. The evidence does not demonstrate that the asset swaps will deliver the gains that the Minister says they will. Many many submissions supported the argument we are putting forward today. More important my Supplementary Order Paper is a clear signal to take a breath and have another look at the information because structural reform of this kind will not deliver the gains that the Minister says it will. 
John Hayes 
: Yes it will. 
Hon NANAIA MAHUTA 
: No it will not. I ask Peseta Sam Lotu-Iiga to take a call. 
CHRIS HIPKINS (Labour—Rimutaka) 
: 
 We are getting to the guts of the Electricity Industry Bill now. Possibly the most significant change being made in it is the asset swap. Let us be clear on what that is all about. There is no evidential base to suggest that this bill will result in more security of supply or lower power prices. This makes State-owned enterprises more attractive for privatisation. 
Hon Nanaia Mahuta 
: Is that the real agenda? 
CHRIS HIPKINS 
: That is the real issue here—the bill makes the State-owned enterprises more attractive for privatisation. 
We know that although John Key said the Government would not sell any State assets that was only in the first term. We are coming towards the end of the first term of this National Government. There will be an election next year. National is quietly starting a process so that if it gets back on to the Treasury benches next time there will be a fire sale. The energy State-owned enterprises the biggest State-owned enterprises that there are are the most attractive for private sale. So this bill is all about making those State-owned enterprises more attractive for private investors. That is what it is about. It is not about lower power prices more affordable electricity or better security of supply; it is about making the energy State-owned enterprises more attractive for privatisation. 
There is no evidence. There has been no evidence and no robust analysis to show that moving Tekapo A and Tekapo B out of the Meridian Energy - controlled Waitaki water catchment system and handing them over to Genesis will improve the situation. In fact quite a lot of advice and evidence suggests otherwise. Even Treasury did not think the case had been made. Treasury was concerned that the robust business case analysis for the asset swaps had not been done. But Gerry Brownlee is just going to blunder on ahead anyway without any evidence to suggest that the asset swaps will work. Gerry knows best. Gerry decided that he would cut up this State-owned enterprise cut up the Waitaki water system and hand over Tekapo A and Tekapo B to Genesis. No matter what the evidence presented to him was he was going to go ahead and do it anyway. 
There are other things that can be done and that are being done to help to address the security of supply issue. Meridian Energy and Genesis already concluded a winter hedge agreement earlier this year so that in dry years when Meridian Energy cannot generate from the hydro Genesis agrees to fire up the Huntly power station to full capacity meaning that there will be no security of supply issue. The rationale for the swap is greatly diminished by that agreement which has already been reached. The virtual asset swap is another way of doing it without having to go through this particular mechanism. 
I want to talk about what some of the people in the know in the industry had to say about the asset swap. I come to Ari Sargent the chief executive of Powershop who had some quite strong views on this and some quite constructive views on where we could go with the electricity industry before Gerry Brownlee muzzled him and told him he was not allowed to say anything. He said: “Tekapo can control the water available to generate electricity through the entire Waitaki system made up of eight separate hydro lakes. It is illogical to reduce the co-ordination between the Waitaki catchments and completely reckless to provide commercial incentives to a single supplier who has the power to restrict water to the rest of the catchments.” That was from somebody in the industry who said that was a bad idea that was likely to result in one of the State-owned enterprises maximising its use of its water to the detriment of the other State-owned enterprise on that particular water system. When we are talking about water flow it does not make sense to have one company controlling the top end and another company working at the bottom end because the company at the top end can control the amount of water that the company at the bottom end will get. 
Genesis will be able to control the amount of water that flows down the rest of the system into the part that will be controlled by Meridian Energy. It will not create the incentives for the most efficient use of the water in that system and that is what experts have been telling us. Again I come back to Ari Sargent who stated: “This puts the security of supply at risk and will see a change in river operation that will increase wholesale prices and prices to consumers particularly in the South Island”. So if this bill is all about lowering power prices for consumers here we have experts in the field telling us that that will not be the case and in fact that it will increase power prices for consumers for those at home struggling to pay their power prices. There is expert advice to say that the asset swaps will increase power prices. 
I ask where Gerry Brownlee’s evidence is that the asset swaps will lower power prices. I read every single submission and every document that came before the Finance and Expenditure Committee and nowhere was any compelling evidence presented that that would work. Let us be clear about this. This is Gerry Brownlee sticking his finger in the air and hoping that it will work—the “suck and see” approach. He does not actually know it will work and has not been able to produce any evidence that it will work; he has just decided to give it a go. In fact I think he even said that. He said: “We’ll give it a go.” in the House when we were debating this bill in its earlier stages. “We’ll give it a go.” is the Government’s line on the matter. Well I think that when we are dealing with multimillion-dollar State assets which these energy companies are we need a slightly more robust analysis than “We’ll give it a go.” and Gerry Brownlee has not been able to produce that. Gerry Brownlee has not been able to produce it yet. 
I will come back to the Labour Party minority report from the select committee on this bill where we drew on the Ministry of Economic Development’s advice to the select committee. I will quote from it too. It stated that “it is not possible to prove that the benefits of the transfer will exceed costs and risks”. Let us count them off now. We have the Ministry of Economic Development saying that it is not convinced it is a good idea. We have Treasury saying it is not a good idea. We have Powershop one of the most innovative companies in the electricity market saying it is not good idea. 
What do the technical experts have to say? The Institution of Professional Engineers made a submission to the select committee and because I am on a roll I will quote from it as well: “IPENZ does not support the transfer of Tekapo A and B as more than any other proposal it may result in the electricity system’s reduced operational resilience.” That was from the Institute of Professional Engineers. It told the select committee: “Tekapo A and B are part of an integrated system. Changing that system could result in potential losses of efficiency conflict of interest between Meridian Energy and Genesis Energy during periods of low demand reduced security of supply and reduced flood management. The transfer will require agreement between Meridian Energy and Genesis Energy—who are required to operate as successful competitive businesses. The gain in retail competition is too small to justify the risks.” That was what the Institution of Professional Engineers told the select committee. So I will count them off again. Treasury said it was a dumb idea. The Ministry of Economic Development said it was a dumb idea—well actually that might not be fair; it said that the case had not been made. Both of those agencies said that the case had not been made. The Institution of Professional Engineers pretty much said that it was a dumb idea and so did Ari Sargent from Powershop. 
There is no evidence to suggest that the asset swap will work—none at all. As I have said when we are dealing with multimillion-dollar State assets which these power companies are some commercial business case should be presented and it should be more than Gerry Brownlee simply standing up and saying: “I think I will give it a go. I think this is a good idea. I do not have any evidence for it but I think it is a good idea.” That is not good enough. That is not good enough coming from a Minister of the Crown. 
Labour is very opposed to this particular provision in this bill almost more than it is opposed to all of the others. We are opposed to most of the others as well but we are very concerned about this one in particular. There will be a less efficient use of water. There is no guarantee that the asset swap will lower power prices. It could create all sorts of conflicts of interest on the Waitaki water catchment system. No business case has been made to suggest that it will work and a lot of advice has been presented to the select committee suggesting that potentially it will not work. 
Before I move on and finish on that point the other thing is that the time frame is very tight and already we are dragging our heels on this bill—we are already a month behind. This bill was supposed to have been passed months ago. I urge the Government to back off from the accelerator on the asset swaps rethink it and go back to the drawing board. It is not a good idea. No case has been made. The Government needs to get the facts together build the case and then maybe reconsider it. 
The question was put that the amendment set out on Supplementary Order Paper 163 in the name of the Hon Nanaia Mahuta to clause 124 be agreed to. 
A party vote was called for on the question  
That the amendment be agreed to. 
Ayes 57 
New Zealand Labour 42; Green Party 9; Maori Party 5; Progressive 1. 
Noes 63 
New Zealand National 58; ACT New Zealand 4; United Future 1. 
Amendment not agreed to. 
The question was put that the amendment set out on Supplementary Order Paper 163 in the name of the Hon Nanaia Mahuta to insert new clause 124BA be agreed to. 
A party vote was called for on the question  
That the amendment be agreed to. 
Ayes 57 
New Zealand Labour 42; Green Party 9; Maori Party 5; Progressive 1. 
Noes 63 
New Zealand National 58; ACT New Zealand 4; United Future 1. 
Amendment not agreed to. 
The question was put that the amendment set out on Supplementary Order Paper 165 in the name of the Hon Gerry Brownlee to the proposed amendment set out on Supplementary Order Paper 154 in his name to clause 126(3)(d)(ii) be agreed to. 
A party vote was called for on the question  
That the amendment to the amendment be agreed to. 
Ayes 68 
New Zealand National 58; Maori Party 5; ACT New Zealand 4; United Future 1. 
Noes 52 
New Zealand Labour 42; Green Party 9; Progressive 1. 
Amendment to the amendment agreed to. 
The question was put that the amendments as amended set out on Supplementary Order Papers 154 and 166 in the name of the Hon Gerry Brownlee to Part 5 be agreed to. 
A party vote was called for on the question  
That the amendments be agreed to. 
Ayes 68 
New Zealand National 58; Maori Party 5; ACT New Zealand 4; United Future 1. 
Noes 52 
New Zealand Labour 42; Green Party 9; Progressive 1. 
Amendments as amended agreed to. 
A party vote was called for on the question  
That Part 5 as amended be agreed to. 
Ayes 68 
New Zealand National 58; Maori Party 5; ACT New Zealand 4; United Future 1. 
Noes 52 
New Zealand Labour 42; Green Party 9; Progressive 1. 
Part 5 as amended agreed to. 
Schedule 1 agreed to.  
Schedule 2 agreed to.  
Schedule 3 agreed to.  
Schedule 4 
The question was put that the amendments set out on Supplementary Order Papers 154 and 166 in the name of the Hon Gerry Brownlee to schedule 4 be agreed to. 
Amendments agreed to. 
Schedule 4 as amended agreed to. 
Schedule 4A agreed to.  
Schedule 5 
The question was put that the amendments set out on Supplementary Order Papers 154 and 166 in the name of the Hon Gerry Brownlee to schedule 5 be agreed to. 
Amendments agreed to. 
Schedule 5 as amended agreed to. 
Clause 1 Title 
CHRIS HIPKINS (Labour—Rimutaka) 
: 
 I am happy to take a brief call on the title of the Electricity Industry Bill in the manner of the Standing Orders which allow in this particular part of the debate for a summing up of what has been quite a lively debate and that is exactly what I intend to do. In summing up several things can be said about this bill overall. First of all the case has not been made for many of the provisions in the bill. Secondly this bill does not focus on the most important issue which is the price that New Zealand consumers pay for their electricity. This bill does not deal with that issue. It does not deal with the three pillars that Labour set forth in the New Zealand Energy Strategy released in 2007: affordability security of supply and sustainability. The bill does not deal with those issues and in many cases the Labour Opposition has put forward quite a compelling case in this debate that the bill goes the other way. 
The Government has done very little to put forward any alternative arguments in this debate. We had a very brief call from the Minister of Energy and Resources at the beginning of the debate and I think we have had three calls from National backbenchers in total for the remainder of the debate. We started this debate at about 4 o’clock this afternoon. It is now a quarter past 9 in the evening and we have probably had about 15 minutes’ worth of contributions from Government members. They want to just ram this bill through. The reason they have not taken any more calls is that they know there is no justification for some of what they are doing. They know there is no justification for the asset swaps between Meridian Energy and Genesis Power. They have not had the commercial business case and analysis done to prove that it is worthwhile. They know that splitting up the Electricity Commission into all of the different agencies—the Electricity Authority the Commerce Commission the Energy Efficiency and Conservation Authority and Transpower—splitting up all its functions and scattering them to the four winds is not going to work. I know that John Hayes is very impatient because that is the attitude of the National Government. Government members want to push this bill through. They do not want to hear any argument or any debate on it. They do not want to hear any facts. They do not want to let the facts get in the way of pushing a bill through the House. 
This bill does not do what it sets out to do. It does not deliver on the promise of lower power prices that National made to New Zealanders before the last election. Members opposite are denying it now. They have stood up and said that they never promised lower power prices but that is exactly what they promised. I visit people in my electorate and I ask them what they expected National to do. By their rhetoric they expected National to take some steps towards lowering power prices. In fact we heard in this debate that National not only will not try to lower power prices but is content to keep the increases a little lower than they otherwise would have been. So prices will keep rising under this National Government despite all of National’s pre-election rhetoric and it will still take a dividend from those State-owned enterprises until it sells them off. 
We know that that is the Government’s real agenda. It wants to finish the job that Max Bradford did not finish which is to sell what is left of the electricity system. The previous National Government made a mess of the electricity system in the late 1990s. It is very difficult for any Government now to deal with the challenges facing the electricity industry because of the mess the previous National Government made of the electricity sector. Now we are stuck with what we have. 
This bill does not go anywhere close to addressing the concerns of New Zealanders about the functioning of their electricity system. This is a bad bill. 
Hon NANAIA MAHUTA (Labour—Hauraki-Waikato) 
: 
 I will take a short call on the Electricity Industry Bill—in fact it should be called the “Electricity (Not Fair Does Not Deal with Prices and Does Not Address the Issue of Environmental Sustainability) Bill”. Time and time again members on this side of the Chamber have raised very serious issues in terms of the price differentials between domestic users and industry users of electricity. What did we hear from John Hayes on the other side? We heard babble. That is what he called the very important issues that members on this side of the Chamber have raised—babble. Shame on him. The issues that we are raising in the Chamber are the ones that consumers are raising with us every day. They are worried about increasing power prices. They are worried about bills becoming harder to pay. They are worried that when the increase in GST comes in the proposals in this bill will not do anything to lessen the increased domestic power prices that they are faced with. 
Time and time again members on this side of the Chamber have raised the critical issues in a broader context but more particularly to deal with the aspects that this bill purports to affect. We are concerned about the asset swaps. There is no clear evidence that asset swaps are clever. This is more about politics rather than substance. We believe it will affect the Waitaki catchment significantly. The Government may well have to come back and deal with the effects of a bad decision. 
Although we are dealing with the title the bill does not address in any way whatsoever the issue of fairness in terms of price setting. We are worried about that. We think that any change to the electricity sector should at least try to give some guarantee on the fairness of price setting. Chris Hipkins has very well constructed the issues that Labour is most concerned about and that is to ensure greater affordability of electricity prices especially in addressing the differentials between domestic and industrial users. In looking at security of supply in terms of greater renewable energy generation there was no clear signal or leadership on that front or on greater price predictability and we believe that consumers deserve it. 
There was no response from the Minister and not even a contribution from any Government member to explain why there are glaring omissions like the ones that Labour has raised. The bill should be called the “Electricity (Not Fair and Not Dealing with Increased Domestic Power Price Users) Bill”. I do not agree with the bill and Labour does not support it. 
Clause 1 agreed to. 
Clause 2 
The question was put that the amendment set out on Supplementary Order Paper 166 in the name of the Hon Gerry Brownlee be agreed to. 
Clause 2 as amended agreed to. 
Bill reported with amendment. 
The CHAIRPERSON (Lindsay Tisch) 
: I move  
That the report be adopted. 
A party vote was called for on the question  
That the report be adopted. 
Ayes 68 
New Zealand National 58; Maori Party 5 ACT New Zealand 4; United Future 1. 
Noes 52 
New Zealand Labour 42; Green Party 9; Progressive 1. 
Report adopted.