Brownlee Gerry: Electricity Industry Bill — Second Reading 
Brownlee Gerry: Electricity Industry Bill — Second Reading 
[Volume:665;Page:12473] 
Hon GERRY BROWNLEE (Minister of Energy and Resources) 
: 
 I move  
That the Electricity Industry Bill be now read a second time 
. The bill aims to improve the current electricity market by putting more pressure on costs and prices improving security of supply and streamlining governance arrangements for the sector. The bill ensures that Government decisions made last year on the recommendations of the ministerial review which I set up to consider how the electricity market was working are in fact put in place. 
The review was undertaken by six independent experts as well as officials and expert consultants and took into account submissions by interested parties on a detailed discussion document. The ministerial review as set up identified that the increase in prices for residential consumers over the last decade was a matter of particular concern. Everyone knows that in the 8 years prior to 2009 electricity prices for residential consumers rose by some 73 percent or three times the rate of inflation. The review identified insufficient competition—particularly at the retail level and particularly in the South Island—as key reasons for an undue increase in those retail margins for residential customers. 
The bill seeks to improve the level of competition through a series of measures. One important measure is to improve the balance in the portfolios of the State-owned generators both in terms of location of their assets and activities and the type of generation they own. The asset transfers include transferring Tekapo A and Tekapo B power stations from Meridian Energy to Genesis; transferring Whirinaki power station currently owned by the Government for reserve purposes to Meridian Energy; and putting in place virtual asset swaps by virtue of long-term hedge contracts between the State-owned generators. 
We are already seeing the benefits of these proposed transfers with more vigorous competition in retail markets including the entry of Genesis into the South Island particularly in Christchurch Dunedin and Queenstown. An important measure is to allow lines businesses back into retailing subject to certain restrictions to ensure open access to lines for competing retailers and generators. Another measure set to make a difference is the establishment of a liquid hedge market to make it easier for new-entrant retailers and generators to cover their risks and to get into the market place. Other measures include setting up a fund to ensure that consumers can shop around making more New Zealanders aware that electricity like any other consumer good can be purchased on the basis of the best price. 
It is also a fact that the main component of the bill concerns improving security of supply. The review concluded that the current arrangements provide incentives for undue and premature reliance on public conservation campaigns and that the reserve energy scheme put in place in 2004 was somewhat misguided and perversely reduces security of supply. No one doubts the motives for putting it in place but it did not work out the way it should have. At the same time the review noted that there are trade-offs between security of supply and price and that in improving security of supply there are implications for costs and prices. In that regard the review exhibited the realism that was notably lacking in a previous report on this matter. 
The bill seeks to improve security of supply through abolishing the reserve energy scheme requiring retailers to compensate consumers during public conservation campaigns and putting a floor on spot prices during such campaigns. The aim of these measures is to encourage generators and retailers to manage supply issues and to remove the free lunch option of transferring costs or socialising those costs to consumers through public conservation campaigns. 
Finally the bill improves the governance arrangements for the electricity industry. The ministerial review concluded that the Electricity Commission had not done its fundamental job of regulating the industry as well as it could because it had too many objectives and too many functions and it was not sufficiently independent. The bill fixes these problems by disestablishing the Electricity Commission and replacing it with a focused and independent Electricity Authority. Functions that are more sensibly performed by other bodies—such as approvals for grid upgrades management of supply emergencies and promotion of energy efficiency—are transferred to other bodies that already have a role in doing exactly those things. We are effectively taking out duplication of effort. The objectives of the authority are narrowed to the things that it can and should be held accountable for—namely providing for an efficient competitive reliable market—and do not include things that other bodies are already legislated to do. 
The bill was referred to the Finance and Expenditure Committee which heard submissions from a wide range of interested parties. I commend the committee for the excellent work it has done in refining this bill and I support the committee’s recommendations. The changes recommended by the committee are designed to fine-tune the bill and to address the concerns raised by some submitters. 
I take this opportunity to discuss several of the improvements made to the bill by the select committee first with regard to the proposed transfer of assets Tekapo A and Tekapo B from Meridian Energy to Genesis. The committee made several amendments to the Supplementary Order Paper that I sent to it for consideration. The Supplementary Order Paper set out various processes to maintain current environmental outcomes and the rights and obligations of various parties following the transfer. The Supplementary Order Paper has been incorporated in the bill with a number of changes. The most important of these changes is to extend the protection given to the named agreements in schedule 4A—ironically it has a similar name to another matter on which I have also been very keen to listen to what New Zealanders have to say—to any written agreements with Meridian Energy relating to the Tekapo station. Another important change is to make it clear to avoid doubt and to help address the concerns of irrigators in the Waitaki region that nothing in this Act changes the application of the Waitaki Catchment Water Allocation Regional Plan. 
Second a set of significant amendments made by the select committee concerns the rules that are designed to head off the risk of anti-competitive behaviour by lines businesses if and when they ever get back into retailing. The amendments raised several thresholds for application of those rules such as for when corporate separation is required and for the amount of generation directly connected to the grid that lines companies can own. These changes improve the balance between encouraging lines companies to provide competitive retail generation services and making sure we retain an open competitive market. 
A third set of significant changes by the committee relates to improving the incentives on lines businesses to offer remote consumers alternative types of energy for supply in situations where the cost of upgrading or replacing remote lines is prohibitive. Remote consumers whose properties were connected before 1993 retain the right to be supplied with electricity to the boundary of their property. The bill provides that lines companies may however supply alternatives to network lines after giving notice to that effect to consumers and property owners. In other words they may consider embedded generation right on the consumer’s property. Lines companies may also enter into voluntary agreements with remote consumers on an alternative supply of energy within the property boundary. Such arrangements may be the most cost-effective supply option. The committee has removed disincentives for such deals by requiring the Commerce Commission to account for the costs of any deal for price-control purposes. 
Finally the committee has made numerous smaller improvements to the bill ensuring that it works smoothly that rights are protected and that the overall objectives of the reform package are achieved. Some further minor technical amendments have come to light since the report back and I expect to table those amendments as a Supplementary Order Paper in the next few days. 
As I have said on many occasions I cannot promise that electricity prices will fall as a result of the reform package. There are a number of upward cost pressures in the electricity industry most notably the need to build new power generation to meet increased demand for electricity and to ensure security of supply. We have long since run out of cheap options for new power stations. However I can promise that this bill will increase the level of competition in the industry especially in retailing and especially in the South Island. This will put ongoing pressure on generators and retailers to improve their performance which will be very good for consumers. Thank you.