Burns Brendon: Electricity Industry Bill — Second Reading 
Burns Brendon: Electricity Industry Bill — Second Reading 
[Volume:665;Page:12489] 
BRENDON BURNS (Labour—Christchurch Central) 
: 
 Is that it? Is that the defence of the Electricity Industry Bill? David Bennett said competition will sort out the electricity industry. Well Mr Bennett should remember back to Max Bradford. He was going to sort out all the issues in the electricity industry with his restructuring legislation but it did not do a darn thing to sort them out. The Minister of Finance who has joined the House will remember that well and also the electoral consequences that flowed from “Mad Max’s” electricity reforms. Gerry Brownlee has learnt very little in respect of these issues. Sure he thundered a great deal while he was in Opposition about how electricity prices were too high and he was right about that. But this bill does absolutely nothing to address the pricing issues and in fact he told the House that this afternoon. He said he cannot promise that electricity prices will reduce as a result of this legislation and he is bang on the money in respect of that—absolutely right. 
An interesting thing emerged during the consideration of the bill by the Finance and Expenditure Committee. We had the chief executive of Meridian Energy in front of us and I asked Tim Lusk a question about whether Meridian Energy supported the asset swap that takes the Tekapo A and Tekapo B power stations from Meridian Energy’s ownership and puts them into the ownership of its rival State-owned enterprise Genesis. Mr Lusk—with not the most convincing body language I have to say—said yes Meridian Energy did support this to a man and woman within the company. I thought that was interesting so I asked the Minister of Energy and Resources whether he had received any advice from Meridian Energy against the power swap. He told me that no he had not had any advice against the power swap. 
So I put in an Official Information Act request to the Minister for State Owned Enterprises Simon Power and back came a letter sent from the chair of Meridian Energy Wayne Boyd on 21 December 2009 to Mr Power to Bill English as the Minister of Finance and to Steven Joyce as the Associate Minister of Finance. It said this: “When we begin to consider the steps that must be taken to implement the changes a number of issues arise. It is a matter of particular concern that Meridian had no opportunity to comment on the final asset transfer decision losing Tekapo A and B with no offsetting new generation capacity. We had no opportunity to provide wider analysis of the wider market implications of the current decisions relating specifically to SOEs.” The letter goes on in some pages of detail saying the asset sale significantly worsens Meridian Energy’s dry-year revenue risk and compromises Meridian Energy’s ability to cover prudent financial earnings multiples. It states that Meridian Energy was not sure about the implications of the asset swap on its relationship with Rio Tinto the current owners of the Comalco aluminium smelter which takes 40 percent of Meridian Energy’s current generation. It said it would not be a simple process to negotiate a new contract based upon the changes with Tekapo A and Tekapo B. The letter goes on further to say that splitting the management of the Waitaki chain across two operators will result in a loss of efficiency in managing the water resource and from an efficiency perspective Meridian Energy will need to hold its lakes higher in order to counter the securities of supply risks that it had outlined. It said this will result in a much higher likelihood of spill and a loss of efficiency. 
This is the advice to three senior Ministers that somehow did not reach the Minister of Energy and Resources. It is an extraordinary thing that three Ministers were advised by Meridian Energy that the asset swap provided for in this bill will have dire consequences for Meridian Energy for the security of supply and for the financial status of Meridian Energy yet somehow or other I was told by the Minister of Energy and Resources that he had had no advice from Meridian Energy against the swap. That is an extraordinary state of affairs. 
Perhaps Gerry Brownlee also chose to ignore the advice from Treasury. It also submitted on the issue of the asset swaps saying how sceptical it was about the net benefits of the asset swap proposals in the discussion document and noting that the technical advisory group had underestimated the costs and risks of the asset swap proposals. The officials did not recommend an asset swap. The Minister decided that they should pursue an asset swap involving Tekapo A and B rather than just the virtual asset swap that the technical advisory group had recommended. 
So we have a Minister of Energy and Resources who either does not receive or chooses to ignore the fact that the State-owned enterprise that he is responsible for has given him very strong advice about the dire consequences of this asset swap. He has Treasury telling him about the consequences of the asset swap being negative but he proceeds with his own decision to make the asset swap the cornerstone of this electricity industry restructuring bill. It is a very high bill based upon that. Not only did Treasury and Meridian Energy question the value of the asset swaps as proposed under this bill but so too did other experienced operators in the electricity industry such as Doug Heffernan from Mighty River Power I thought that was an extraordinary thing. It was brave for a man who is still in the employment effectively of the Government as a State-owned enterprise chief executive to tell the Finance and Expenditure Committee quite candidly about his belief that asset swaps did not deliver the value that some people might ascribe to them. 
Hon Tau Henare 
: What’s strange about that? 
BRENDON BURNS 
: It is strange because he was being candid but his advice was totally ignored by the Government. Gerry Brownlee got it into his head that this measure was the answer to the electricity industry’s problems but at the outset and on the return of this bill to the House today he could not say this legislation would lead to reduced power prices. It will not according to Treasury’s advice according to Meridian Energy and according to other power operators increase the security of supply which is the second issue. I do not need an inhaler. Mr Henare might; he has had the operation not me. 
There is also commentary from Powershop’s chief executive. Powershop is a new player in the market—take heart I say to Tau Henare. Ari Sargent the chief executive of Powershop slammed the reforms saying there was a high risk that they would lead both to higher prices and to less secure power supply. Here is another player in the electricity market expressing concern so it is all rather stacking up in one direction. The technical advisory group did not recommend a physical asset swap. Treasury said it will not work and the chair of the board of Meridian Energy outlined in a document not disclosed until today that it will not work. He said there are real consequences stretching as far as Meridian Energy’s supply agreement with the power station in the electorate of the Minister of Finance I believe or certainly just outside it. Yet Gerry Brownlee was able to proceed with this whimsical scheme which supposedly will deliver huge competition on the basis of an asset swap that gives Genesis some of the supply from the Tekapo scheme. That will mean at the other end of the deal that Meridian Energy which has made its whole basis around being the only 100 percent renewable electricity supply company in this country gets the Whirinaki power station powered by diesel and powered up when we really need the electricity. Meridian Energy will either have to sell Whirinaki or completely rebrand itself. 
This is a cock-eyed scheme if ever there was one. Ari Sargent is one person who very clearly identified that amongst a number of other submitters. One of the best submissions that we received on the select committee was from David Close who has been an Electricity Commission member and has long been involved in power boards in Christchurch. In terms of the price issue he noted—and yes he did acknowledge there has been that rise in price across the retail sector—in a graph that was later picked up and re-presented to us by officials that although there might have been a 72 percent increase for the retail sector over the last decade if we look at the price increase that has happened across the commercial and industrial sectors we can see that those sectors have had much smaller increases. That is a very real concern. Those sectors have not had the price increases; the retail sector has paid the price. 
Here we have a scheme that is based upon a whim of the Minister of Energy and Resources. It was not backed by Treasury by Meridian Energy or by others in the power sector. They say it will not work and it will not deliver security of supply. It may well increase the price pressures at a time when already people are reeling under the existing prices for electricity. Prices are already starting to rise in anticipation of this bill coming into law. That is before the GST increase takes effect on top of it all. This is a bad bill. It is a whim from Gerry Brownlee. It deserves to be dismissed by the House.