Hipkins Chris: Electricity Industry Bill — In Committee 
Hipkins Chris: Electricity Industry Bill — In Committee 
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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.