Hipkins Chris: Electricity Industry Bill — In Committee 
Hipkins Chris: Electricity Industry Bill — In Committee 
[Volume:667;Page:14176] 
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.