Dialogue: Electricity: the untold story

The Government's Electricity Industry Bill went off to Parliament's commerce committee amid a flurry of publicity about its draconian powers. During three months of hearings it was extensively amended but, because of Parliament's rules, no one was allowed to say what was going on. Then the Opposition blocked the revised bill from being reported back. Labour MP David Cunliffe, who chaired the commerce committee, explains what would have been in the bill if it had been able to proceed.

T HREE months of painstaking work. Hundreds of submissions and letters. Days of public hearings. Many hours of select committee consideration. Tens of thousands of dollars of research. All apparently wasted.

Why did the Opposition block the commerce committee's report back and commentary on the Electricity Industry Bill last week? What did the Opposition not want you to see?

Fortunately, the unofficial draft report is now public. Here is a summary.

The starting point Remember the Auckland power crisis?

New Zealand needed a new electricity bill. The forced ownership split of electricity lines and retail companies in 1999 led to a takeover war. Consumers are still paying for it.

Regulation of monopoly power companies was weak and incomplete. The result: higher prices for many business and domestic consumers. Environmental performance sucked - dams spilled precious water while more fossil fuels were burned.

Last year the electricity inquiry carefully worked through the problems and proposed solutions that would meet the needs of both industry and consumers.

Better industry self-governance would be supported by more effective backstop regulation. New safeguards would protect the environment and the most vulnerable consumers.

To achieve this, the regulation-making powers needed to be effective and credible. They also had to be transparent, predictable and constitutional.

The committee's task was to ensure that the right balance was struck, all key issues analysed, and the legislative drafting was up to scratch.

Problems were found, but so were solutions. The key issues are:

Industry self-governance The central idea of the bill is for industry to manage its own affairs, provided it does so in the public interest. If problems arise, the minister can issue warnings. If they go unresolved, the minister can regulate to fix them. Only if there is a fundamental failure of the whole system can industry self-governance be replaced by a public board.

Some argued that the self-governance mechanism (the Industry Electricity Governance board, or IEGB) could be dominated by one sector - eg, generators. To prevent this, all IEGB directors will be independent and consumers will have half the votes for the board.

Some suggested putting the objectives of the IEGB and its working groups into law. Others thought this could undermine self-governance. On balance it was felt best to keep this under review.

Regulation-making powers

Parliament's regulations review committee considered that some of the original bill's regulation-making powers were too broad. It made six recommendations. All were accepted and acted on by the commerce committee.

All regulations would be made subject to Parliament's constitutional watchdog - the Regulations Disallowance Act. Any inappropriate regulations would be struck down. A clear distinction would be made between regulations and rules, the latter covering only technical details. Policy matters would be clearly set out in new purpose clauses.

Committee members considered that the minister should give an early yellow-card warning to industry in the event of major failure, before setting up the public Electricity Governance Board (EGB). The warning must state the reasons and give the industry time to fix the problems first. A new schedule to the bill would clearly set out how the EGB would work.

Price control

The bill gives the Commerce Commission powers to protect both business and domestic consumers from excessive lines charges, using a formula called CPI-X (capping price rises at the rate of inflation minus productivity gains). In the committee, Opposition members preferred blanket price control; Government members preferred to target bad behaviour.

Remember last year's fixed charge rise before Christmas? Under the bill, power companies must offer a low fixed-price option to all consumers (business or domestic). Low-usage, often elderly consumers would get a fairer deal. High-volume users could still use variable-charge plans as they do now.

The Opposition did not like this. Government members stand by it. Power prices paid by ordinary New Zealanders have risen too much.

Land access Before 1993, local power boards could put poles and pylons on land without paying landowners. After 1993, easements had to be negotiated between the parties.

The bill originally suggested clarifying that any pre-1993 lines should be deemed legally fixed unless there was legal evidence to the contrary. Landowners, farmers and iwi strongly opposed this. They also objected to broadening the definition of line maintenance to include minor upgrades.

The committee proposed deleting the offending Clause 7 and replacing it with new comfort clauses guaranteeing landowners their rights and freedom from maintaining access tracks. With these amendments, no landowner would be worse off.

The definition of upgrades was tightened. Strict notice periods were proposed to protect landowners from arbitrary entry by lines companies.

Once again, these problems were resolved. The committee had all the information it needed to make a decision. However, National and Act members wanted to split the bill and keep lines companies and landowners in limbo for years longer. Perhaps politics was preferred to solutions.

Energy trusts The original bill required trusts to publish audited financial statements and have a code of good practice. Reserve audit powers were given to the Auditor-General.

Energy trusts objected strongly to the latter. The proposed amendments would have fixed the problem - any trust whose beneficiaries elected independent auditors would be exempt from audit by the Auditor-General. Deal done.

Environmental issues Proposals included a better definition of hydro spill that would support environmental efficiency. Better incentives for new and renewable energy sources were to be included.

The Parliamentary Commissioner for the Environment and Auditor-General would report annually on the industry. Two consecutive negative reports by both officers would require the minister to issue a formal yellow-card warning to the industry.

What happens next Potential solutions and compromises clearly existed to fix the issues raised by submitters.

So why did the Opposition take the extreme step of blocking the normal report to the House and stop the public getting an official record of all that work and thinking? After all, National had already included its own dissenting language in the commentary.

The result is that submitters, industry and consumers have been denied the report they paid for and helped to write.

What happens next depends on the Minister of Energy, Pete Hodgson. He must consider whether to introduce amendments on the House floor or introduce a new bill. I still hope that the work of the committee and the effort of submitters can be put to good use.