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Speech To Electricity Engineers’ Association Of NZ

Hon Pete Hodgson Speech Notes
10am Friday 21 June 2002

Address To Electricity Engineers’ Association Of NZ

[Opening address to Electricity Engineers’ Association 2002 conference, Christchurch Convention Centre]

Thank you for the opportunity to speak today.

I didn’t know it when I accepted your invitation – and nor did you – but this will be my last significant speech as energy minister in the current term of government.

I think that makes it a good occasion to look over what we’ve achieved in the electricity industry in three years, and to look ahead at what must still be done to ensure that New Zealanders have the electricity system they deserve.

It has been three years of steady progress in shaping a better electricity industry from the upheaval created by the previous government’s radical reforms.

I try not to go on too much about the mess Max Bradford created. It’s my job to fix it up, not complain about what this government inherited. But the truth is that inheriting another person’s mess is no picnic.

Many of Bradford’s interventions are irreversible. Others were not, and we have changed the law to get rid of them.

I remember finding out last winter, while the legislation was going through the House, that there was a generator at the Port of Wellington that could not help relieve the supply shortage because it fell foul of Max’s law. It couldn’t be turned on because the port company owned the lines on site as well as the generator, and the law said line companies couldn’t generate electricity.

That was the kind of nonsense I and others were dealing with. It was the result of a triumph of ideology over common sense, and common sense is still fighting its way back.

That job is not yet finished. But we have delivered many improvements.

Two years ago the ministerial inquiry headed by David Caygill gave us a thorough and balanced readout on the state of the industry and its regulation. The government accepted the Inquiry's recommendations and in December 2000 we set out our agenda in the Power Package electricity policy.

The changes we are making have two aims. The first is to deliver fairness to all consumers, particularly small consumers. The second is to promote environmental sustainability and energy efficiency.

Our approach, following the Caygill panel’s recommendation, has been to look to industry solutions where possible and regulation where necessary.

Self-regulation gives the industry ownership of its problems and opportunities. Government regulation protects the interests of consumers and the environment. The right balance between the two will serve everyone.

As you will know, the industry is still building a new, unified self-governance arrangement. It is taking longer than anyone anticipated.

Naturally I would prefer it was done already, but I know that the delay is not for lack of effort. The task is large and complex.

There is a spirited debate within the industry about the new governance structure and it is yet to be approved by the Commerce Commission. But the end is in sight. And the incentive for the industry is powerful. The government now has the statutory power to appoint its own governance board if the industry fails to deliver.

Some key improvements have gone through in advance of the industry’s rearrangement.

A low fixed charge tariff is now available to electricity consumers throughout New Zealand, which is important for small power users such as pensioners. My focus now is on making sure that low fixed charge options are effectively promoted to those who need them.

The office of New Zealand’s first Electricity Complaints Commissioner was set up last year. It has now received nearly 800 complaints, a statistic that offers the industry no comfort but shows the need for the service.

Electricity retailers can now be fined – and are being fined – for customer switching errors.

We have a more transparent industry in several respects.

The Commerce Commission has reviewed the asset valuations of the nation’s line companies and, with a couple of minor exceptions, approved them. That means lines companies now have robust valuations.

New regulations requiring disclosure of hydro spill are now in force, providing an important discipline against spilling for the purpose of driving up the wholesale price.

The industry has agreed to disclose all bids and offers into the wholesale market after two weeks, subject to Commerce Commission approval, which will provide another useful insight into market behaviour. It has also agreed to disclose a comprehensive index of future hedge prices, which will reveal expected trends.

An achievement particularly important to me is the establishment of New Zealand’s first ever National Energy Efficiency and Conservation Strategy. This deals with a range of energy sources but electricity is undoubtedly the most significant.

The strategy is important because we still waste hundreds of millions of dollars worth of energy every year. That’s an enormous drain on our economic, social and environmental wellbeing.

The Strategy is a package of cost effective investments in technologies, management practices and efforts to change energy-inefficient behaviour. It is directed at achieving a 20 percent improvement in national energy efficiency by 2012, which would deliver about $900 million of net benefits to New Zealand over the next 10 years and make a significant contribution to reducing greenhouse gas emissions.

The strategy also sets a preferred target of an additional 30 petajoules of energy from renewable sources by 2012.

Greater use of renewables will move us further towards a sustainable energy future. It will increase long-term supply security, contribute to our climate change commitments by reducing carbon dioxide emissions and provide new business opportunities.

The goal we have set ourselves for renewables is challenging but achievable. If reach it we will arrest the expected decline in the proportion of energy from renewables.

If we manage to secure some growth on top of that, raising New Zealand’s already high level of renewable energy, so much the better.

We should note that despite its problems the electricity industry has made some improvements on its own account in the past three years.

Switching retailers is easier and switching rates are on the rise again.

Planning for new generation is well under way and the new Manapouri tailrace is now in use.

Transpower is tuning up the national grid with a number of small, cost-efficient improvements to increase capacity.

Transpower, Vector and United Networks have begun developing the Power Link plan for Auckland, to ensure it has the transmission network it needs for the future.

As I said at the beginning, however, there is still plenty to do before we have the electricity industry we want.

The industry must get its new governance structure in place and get on with the tasks the government has set for it, like drawing up a model consumer contract and making pre-pay meters more widely available.

The Commerce Commission must settle on a price control methodology for line companies and start applying it to deserving cases.

Electricity trusts must get an acceptable code of practice in place that brings the increased transparency and public accountability government policy demands.

The government must get on with implementing the National Energy Efficiency and Conservation Strategy. We must complete the passage of the legislation that brings electricity under the Consumer Guarantees Act.

Some transmission constraints remain, and must be fixed. A transmission pricing methodology must be established first.

Most of all we must keep the pressure on the industry to deliver real competition for consumers.

Outside the main centres, in particular, the current level of competition is inadequate. And if proper retail competition does not arrive, for all consumers, the market model cannot survive.

Nobody should be in a hurry to prescribe more radical restructuring of the electricity industry, not while it is still in recovery from the last bout.

But stronger competition is essential for the future of the industry in its current form. Without it, consumers can have no confidence that they are getting a fair deal.

I also want to see more innovation from the electricity industry in the way it serves consumers.

Apart from the odd Sky TV offer, some basic websites and some 0800 numbers, consumers are still getting much the same service from their power company as they did 10 years ago.

By and large they’re not impressed.

Where is the imaginative bundling of services? Where are the partnerships with other household and commercial service providers? Where’s the new metering technology? Where are the e-commerce innovations?

I am asking these questions of an industry that has spent the last three to four years struggling to get back to what you might call “service as usual”.

But I am also suggesting that the level of innovation we see in the next few years will be another test of the success of the market model.

This is an industry that used to be entirely publicly owned. Private ownership and competition are supposed to deliver more innovation and customer focus.

The public will need to see some of that before its opinion of the industry improves.

I want to close with some congratulations to those behind the new Electric Power Engineering Centre, particularly Professor Pat Bodger and Meridian Energy.

The centre is an excellent initiative and I urge those network companies who are not involved to get in behind it.

Electricity is the essential fuel for a sustainable economy. It is vital that New Zealand has not just a high quality electricity system, but a good supply of New Zealanders with the skills to maintain and improve it. Those behind the centre have spotted an impending skills gap and have moved, we hope in time, to plug it.

As we make increasing use of renewable sources of electricity we will also need innovators and explorers of new technologies. That’s the job of your profession. I look forward to you delivering on it. I am confident you will.


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