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Bonus Joules: Eye of the Unknown

Bonus Joules and the Knowledge Economy

Eye of the Unknown

Bonus Joules leaves the dying Cheap Oil-Gas Economy and strikes out for the Great Electric-Solar Economy.
Bonusjoules Blog
Chapter Four-Energy Rules-Eye of the Unknown
Blog by Dave McArthur - published 3 May 2007

Bonus Joules and the Knowledge Economy: All images on this site are copyright 2001 and you are free to use them with care.

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Dear Bryan Leyland. No, start again. Dear all the Bryan Leylands in New Zealand. And the world, for that matter. I believe you are making a massive error demolishing the Auckland Energy Community Trust, which owns most of Vector Ltd i.e. the utility grids of Auckland and Wellington cities. Your action will dwarf the disastrous fiascos of NZ Telecom and NZ Rail and will cost our nation dearly. Please, please reconsider.

Start yet again. Dear Bryan and all the Bryan Leylands out there. Suddenly this blog is personal. I have been thinking about writing it for several months now since I read or heard you say you are going to stand in the next elections of the Auckland Energy Community Trust with the express purpose of winding it up because you believe it has passed its use-by date now. I know there are others who share your belief and that you have the power to influence a large number of people who have little knowledge of the very high value of Vector Ltd. So I address you all. I suggest institutions such as the Auckland Energy Community Trust are more critical than ever to our wellbeing as this short era of cheap oil and Gas rapidly comes to its end. Without it New Zealanders will be condemned to Third World status.

I had just sat down and started this new blog with “Dear Bryan Leyland” when the phone rang and it was you – the Brian Leyland. I have never met you though I have listened to you on National Radio where you are one of their resident “energy gurus”, read your ideas in Climate Science Coalition media releases and attended your lecture at the Futures Trust on how to optimise the national grid. So it was a bit spooky to pick up the phone and hear your voice. It changes my blog so now it will seem far more personal than was the original intent.

You rang because you had just read my last blog on SCOOP news. In it I reflected on the Victoria University seminar Making Change- taking the initiative on climate change.

As an aside, it occurs to me that this title is very revealing of the seminar’s psychology. It also seems very daft now as I write it. The title denies the universe is constant change – that is the nature of energy. Change occurs with or without the existence of humans. Perhaps Conserving Climate Balances would have been a more sustaining title. However I guess the idea of humans making change fits with the seminar’s flawed fundamental principle: climate change is a bad thing and we must fight it.

It had been reported to you that a seminar organiser had publicly described you as a loony because you question the role of humans in climate change. I could not recall this exact phrase being used and have no record of it in my notes. However as I made clear in my blog reflections, the responses of some Vic faculty members do lack science and evidence arrogance. There is an eminent possibility the incident did occur if you disagree with their views.

I am glad that you too believe that climate change is the natural order as that reveals a healthy appreciation of life and the Conservation Principle. I suspect the Principle is even more magnificent than you imagine – more on this later.

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I am not a member of the NZ Royal Society as you are. I don’t know if school janitors are eligible. However I have had sufficient experience with it to share concerns about the lack of science in this august, Taxpayer funded institution. I am gloomy about its lack of inclusiveness, its denial of the Conservation Principle and its inability to engage in open debate and to confront key questions.

It was in the spirit of science with its requisite for open debate that I questioned your intention to close down the Auckland Energy Community Trust and suggested this action is very unwise. As mentioned above, most of my argument was formed up several months ago pending me finding time to form it into this blog. Some of it will overlay the brief phone discussion we had on the topic.

First a quick backgrounder for the benefit of overseas readers and younger New Zealanders who may be unaware of the details of the “sales” in the early 1990s of our national telecommunications and rail grids:

These transfers from public to private ownership were done against the will of the majority of our people. Indeed the processes were seen as so corrupt that they generated a revolution in our politics.

In a world first The Labour Party Government transferred ownership of Telecom (our national telephone system) from the New Zealand people to the USA-based Ameritech and Bell Atlantic subsidiaries in 1990. The aftermath was that it was decisively voted out of office a few months later in its worst ever electoral defeat.The price was a mere $NZ4.25 billion for a landline system reaching almost all households in a country 1000 miles long. Its assets included new optic fibre systems, ownership of phone numbers and the Yellow Pages.

Gifting ownership of phone numbers effectively gave the new owners a monopoly over landline usages worth many $NZ billions and destroyed the very competition the sale was supposed to promote. If Labour had truly believed in competition it would have at least retained New Zealanders’ phone numbers in a central agency to ensure portability.

The Yellow Pages was recently flicked off for $NZ2.24 billion.

Under the new owners NZ Internet/broadband usage has plummeted relative to the rest of the world from near top a decade ago down to 22 on the OECD charts.

At the time I wrote to the then Minister of Finance, the Hon David Caygill, begging him not to sell Telecom. Dave responded by sending me a large wad of Treasury briefing papers. Honoured as I felt, I still recall my shock and disbelief as I realised how flaky the arguments were. I could not believe these guys were being paid huge money to write such pap. I figured the majority of the people on my meter rounds could have provided a better analysis. History shows they were much wiser.

Another of the last acts of the Labour Government in 1990 was to set up the national rail system for sale. The election was on October 27 and on October 28 a separate entity called NZ Rail Ltd was set up. Labour’s replacement, the National Party Government was equally corrupt and transferred ownership of the national rail grid to two merchant bankers, Michael Fay and David Richwhite, and their overseas mates in 1993. What was extraordinary about this is that Fay and Richwhite, who now reside in Europe, were contracted to advise on the framing and valuing of our rail system for sale and sold it to themselves.

I have heard some, such as economics/business lecturers at Victoria University, argue that New Zealanders got a great deal from the sale of its national rail system and it was a very clever act.

My understanding is that the nominal price of the sale was $NZ400 million and all sorts of hidden clawback arrangements effectively mean New Zealanders may have paid a couple of bankers up to $NZ280 million to take ownership of was perhaps $20 billion of assets. Reliable sources suggest the locomotives were worth $4 billion alone. The New Zealand people had just built an optic fibre system running much the length of our country-long rail system and the new owners soon after sold this alone for a rumoured $NZ100 million. As for the value of all the NZ Rail real estate, in 2003 New Zealand taxpayers alone spent well over $NZ20 million buying back and repairing the capital city’s railway station. To complete the insult, our students now have to take out loans to cover the fees required of them to pay the market rentals charged on Victoria University’s lease of the building.

My experience is that it is very clear to many of the least educated of us that these transactions beg many questions of the wisdom and morality a of those involved in the rail transaction. We are now paying a very high price because our resultant national dependence on inefficient uses of oil is impacting in the form of the highest interest rates in the OECD, profound inflationary pressures, rocketing household debt levels, a crippling exchange rate and CO2 emissions have increased 39% since 1990. The latter increase means we could well now have a $NZ billion carbon trading deficit instead of a carbon credit.

In short, these transfers of our telecommunications and rail systems have been pretty disastrous - history will show these actions cost the New Zealand people $NZ100s of billions and contributed significantly to pollution and the destruction of vital environmental balances and resources that sustain us.

In 1993, appalled by the corruption of both the National and Labour administrations, the NZ people rebelled in an unprecedented way, forcing a referendum, which they used to scrap the First Past The Post electoral system that had operated since our first parliament in 1853. This was despite the CEO of the privatised Telecom, Peter Shirtcliffe leading a powerful national campaign for the status quo.

We replaced it with the MMP system, designed and adopted in Germany immediately after World War II as that nation struggled to find democratic ways of ensuring a Nazi era could not happen again.

In New Zealand a considerable number of people, especially those who had experienced the fascism in Europe either, saw the rail and telecommunications transactions as fascist acts too and it was hoped MMP would limit the possibility of such activities in the future.

The National-NZ First coalition that formed the first MMP Government in 1996 continued with such fascist acts. In April 1998 in another extraordinary act they disenfranchised 99.9% of New Zealanders so they could no longer effectively participate in the Electricity Market. The Electricity Generation, Retail and Distribution legislation reduced participation from about 60 community groups and a couple of large corporations to just a few dozen large corporations who can now dictate how New Zealanders use electricity and design their homes.

Our media, academics and other prominent commentators describe this repressive legislation as “liberalisation” and “deregulation”. Yes, they are serious and, yes, it is hilarious and, yes, it is tragic. I wonder what they describe Hitler’s invasion of Poland or Holland as?

In 1999 the National–NZ First coalition sold off a critical segment of the nations Bulk-generation capacity in the form of Contact Energy. This act effectively destroyed most of remaining intelligence potential of the nation’s electricity grid. One of the company’s hydro dams, the Clyde dam, alone cost the New Zealand people about $NZ2 billion dollars to build in the 1980s. The National-NZ First coalition sold over 20% of the nation’s Bulk-generation capacity with Contact and destroyed its remaining intelligence potential for less than what it would cost to build that one dam in terms of 1999 dollars.

A few months later in 1999 the New Zealand people decisively voted out the National-NZ First coalition, punishing the latter party particularly hard for its betrayal of democracy.Its replacement was a Labour-led coalition.

The NZ Labour Party, after a decade in the wilderness, now seemed less fascist and campaigned on a platform of no more “asset sales”. In its campaigning it capitalised on what it called the “electricity shambles” created by “Mad Max’s Reforms” – a reference to the Hon Max Bradford who as Minister of Commerce was architect of the 1998 Electricity Reforms.

As an aside, at least Max was about the only politician responsible for mineral and electricity resources in the thirty year reign of Energy Gobbledygook who was sane and humble enough not to call himself “the Minister of Energy”. The same cannot be said about the Labour Party’s Hon Pete Hodgson. Pete often thundered on about “Mad Max” and then, when in Government, he immediately adopted the surreal and impossible mantle of “Minister of Energy”.

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Pete was also instrumental in selecting the Hon Dave Caygill, Labour’s Minister of Finance at the time of the Telecom “sale” in 1990, as head of a Government Commission of Inquiry into electricity in 2000. This Inquiry was Labour’s showcase of their intent to clean up the “electricity shambles”.

Rumour has it Dave rolled the conclusions of the other members of the panel who saw the Electricity Reforms as unsustainable. Whatever, Labour did not buy back Contact Energy. It has maintained the Electricity Reform legislation to this day and so the national grid continues to lose its resilience and the vast bulk of New Zealanders remain barred from making intelligent uses of electricity.

Deep distrust of the Labour, NZ First and the Labour Parties persisted. However the Labour-led Government evidenced a renewed grasp of democracy and while it refused to buy back Contact Energy and maintained the fundamentally flawed model of State Owned Enterprises (SOEs) for Bulk-generation of electricity it did not attempt to sell the rest of our nation’s Bulk-gen resources as National almost certainly would have if returned in 2000. In the 2002 elections, Labour retained their vote while the support for National dropped to a historic nadir- just 24% of the vote.

The effective transfer of ownership of the South Island Grid by TransPower to the Wachovia Bank of North Carolina in a shonky Cayman Islands deal in 2003 with the full blessing of Labour’s Minister of Finance, the Hon Michael Cullen, revealed the Party still retained only a tenuous understanding of democracy.

Similarly the 2004 the Labour-led Government failed us when New Zealand was presented with the wonderful opportunity presented by the sale of NGC by Australia Gas Light (AGC). This was an opportunity to regain control of essential elements of our nation’s grid that we lost in the 1990s. For instance, AGL-NGC effectively controlled the switchboards of half the households in our nation through its ownership of half our 1.8 million meters and associated demand response systems. The Electricity Reform legislation of the 1990s and accompanying corruption had forced communities to divest their control of these vital assets. They were forced to literally give away the ripple control technology on switchboards because demand control was viewed as a liability by Government policy makers and by the new corporation owners like TransAlta. These companies make their best profits burning precious fuels like our Natural Gas as hard as they can at peak load times in the new exclusive Electricity Market.

The Labour-led coalition could have used this NGC resource as a base to free consumers from the dictates of the Bulk-gen companies and enable us to make some really intelligent uses of electricity using the exciting potential of emerging technology in broadband through local grids and smart household appliances, demand response and small scale generation.

Instead it sat on its hands. It also sat on the billions of dollars it had siphoned out of communities through enhanced electricity consumption taxes and through the dividends it demanded of SOEs such as Meridian. Genesis and Mighty River this century.

It was the Auckland Energy Community Trust that did the noble deed for us and purchased back the NGC assets. It used Vector Ltd to do what a truly democratic Government would have done. However the Trust did it at an enormous cost that will eventually impact badly on most New Zealanders. The Labour-led Government could easily have provided the required $A760 million loan for Vector Ltd to purchase NGC. Electricity meter ownership, for instance, has been a pure cash flow of at least $50 million/annum for their owners this last decade. ($NZ50 rental per anum per 30 year old meter x at least 1 million such old meters = $50NZ million per anum pure cash flow =$NZ500 million pure cash flow this last decade out of communities.) That installs a lot of “smart” meter/response systems.

Instead we were put in the retrograde situation where the Auckland Community Trust had to sell off 24.9% of Vector Ltd to the likes of Brook Management and other groups who evidence little interest in intelligent uses of electricity, Gas and other essential national resources. These people are devoted to generating the quick buck, the short term extra % return in their own pockets. Recall how they came screaming out of the woodwork when it was proposed Vector could reduce needless wastage of our limited reserves of natural gas by piping it direct to households rather than burning it to generate electricity.

And read this uncritical and fawning account of Brook Management in the NZ Herald. This, of course, is the unsustainable, short-term thinking one expects to find in a broadsheet owned by an oil and Gas tycoon like Sir Anthony O’Reilly. Check out his broadsheet’s headlines like this Switch off energy trust.

A few people like Sir Anthony stand to be the main beneficiaries of your proposal to destroy the Auckland Energy Community Trust, Bryan. The vast majority of us are placed at greater risk on many levels.

The Herald article bangs on about the need to protect the interests of all shareholders in the stock market and I understand you propose to wind the Auckland Energy Community Trust up in the interest of the stock market shareholders in Vector Ltd. I cannot understand your concern for their welfare, Bryan. I doubt there are more than 2% of New Zealanders who have a direct shareholding in Vector Ltd through the Stock Market. I ask you: how much does this small group of New Zealanders care beyond their short-term dividends to the welfare of our children? The evidence suggests they care very little.

Bryan, you will recall how when NZ assets like Telecom and Contact Energy were sold we were faced with a barrage of commentators waxing lyrical how at last “Mum and Dad” shareholders would at last have a great chance to be involved and help shape New Zealand. Well, lets have a brief look at how they have shaped New Zealand.

First I will say that many of these people are good hardworking folk who have been convinced that there will be no superannuation for them in their old age and the issue is so desperate that they have to invest for themselves or their partner, even if their investments destroy the superannuation of many other folk. They have been told in no uncertain terms by vested media interests that they are on their own in the old age. No one is going to look after them. No one. They are going to be left to die of cold in their beds. Having taken this message on board it is natural they conclude its every man and woman for themselves. Of course pure greed is operating as well as fear and desperation in some cases. None of which is nation making.

17 years on even some of the most ardent supporters of the sale of Telecom, including some of those mums and dads, are now admitting this act is a major failure in terms of almost every one of the claims made justifying the sale. Many have had the embarrassing experience of explaining to overseas visitors why we are now stuck with crud Internet access.

The famous “Mum and Dad” investors have turned out to be relatively few in numbers and their administration of this vital resource has been characterised by greed, exploitation, lies and a singular disregard for the welfare of our children. Now these owners of Telecom are talking about trying to sell the gutted structure of our landline system to someone else to retrofit it. Read that someone else as us other New Zealanders who they have been flogging stupid for 17 years – just as we are now forking out to repair our gutted rail and air systems too.

I am not impressed with the stewardship of the “Mum and Dad” owners of Contact Positive Energy either. Look how they squandered our Gas reserves, burning them as hard as their plant would operate even as the country has experienced its largest Hydro-dam spillovers in our history. I did not hear of any “Mum and Dad” shareholders blowing the whistle on this scandal and protesting in the streets about wastage. There’s a whole separate blog waiting on Contact Positive Energy, Brian.

Indeed the implications of your proposal to destroy the community Trust are so huge, Brian, I am going to have to spend a couple of blogs looking at different aspects of the risks you are putting us all at. In particular I want to discuss the critical role community ownership of Vector and democracy has in enabling New Zealand to make the transition from the Cheap Oil/Gas Age.

I will end with a brief look at another impact of those “Mum and Dad” stock market investors whose interests you are devoted to protecting.

They are very often the same folk who have bought multiple dwellings as a hedge against a “shortfall of income during their retirement”. They have done this by exploiting our high interest rates. In so doing they are now leveraging up the cost of homes so much so that many young people can now only dream about owning a home and enjoying the security such ownership affords families in this country. As we all know, Home affordability is plummeting.

I have just spotted a very interesting article on this subject on SCOOP by Keith Rankin entitled “High Interest Rates Encourage Housing Speculation”.I am not sure if Keith is getting to root causes.

For the last couple of years I have been challenging the belief of people like ex-Reserve Bank Governor, Hon Don Brash, who claimed they brought the inflation of the 1980-1990s under control by their clever use of fiscal measures. I pointed out in my blogs that their tenures as Reserve Bank Governors, Finance Ministers etc simply coincided with falling oil/Gas prices. I predicted their faith in fiscal measures to control inflation would be prove to be unfounded because they were not acknowledging the root of our inflation – our addictive uses of oil and Gas. This addiction is one of the main drivers of our inflationary pressures. Check this oil-inflation graph out!

So, as I predicted, last year we saw inflation caused by our addictive use of oil and Gas pushing inflation through the 3% threshold. I recall one occasion when it pushed inflation from 2.7 to 3.4 % .The Reserve bank responded, as have other oil addicted economies like the USA, to breeches like this by raising interest rates. This in turn attracted more “hot money” from overseas in for a quick buck off an oil-addicted nation. Those “Mum and Dad” investors used the flood of money to leverage up the price of dwellings. This is not the action of people who care about the welfare of our children’s generation.

Bryan, I see it this way: the intelligent and democratic use of the nations electric and solar potential is critical to our capacity to break our nation’s addictive uses of oil/Gas. And make no mistake about it, if we do not heal this maladaptive behaviour then the people of New Zealand are destined to experience widespread violence and misery as the era of Cheap Oil/Gas oil fades and we are forced to confront the impacts of our uses of carbon. Vector Ltd with its ownership of the grids the New Zealand’s capital city (Wellington) and in its largest city (Auckland) is pivotal to the nation’s future. Contrary to what the likes of Rod Oram and Kathryn Ryan said on our National Radio last week, I believe, as a country with an urban-based population there is much we can do to reduce our demand for oil.

You are making a decision that will reverberate around the globe and down the generations. Maybe if you demolish the Trust then Victoria University will give you an honorary degree too, as they did to the above mentioned Hon Dave Caygill (above mentioned) and the Hon Fran Wilde. Fran, who as Mayor of our capital city destroyed most of its intelligence potential with her decision to sell its utility grid, thus destroying its most sustainable options plus the civil defence capacity of the city and its hinterland. In my next blog I will provide a photographic essay of her legacy Brian. There may be other Auckland people who are also not aware of the dangers of losing control of Vector and your local grid.

I will end this blog to you by saying that I believe that if you are awarded an Honorary degree too for demolishing the Auckland Energy Community Trust it will soon grow to feel like a shroud around your shoulders. The trust and Vector are the key to a sustainable and prosperous future for our country. It is in your hands. I pray you know great wisdom as you use it.

General Footnotes

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This week’s Bonusjoules award goes to the Hon Clayton Cosgrove who seems to be reviewing the Hon Lianne Dalziel’s knee-jerk decisions to effectively ban Do It Yourself builders. NZ’s building stock rates some of the most wasteful of valuable resources in the OECD. She completely failed to understand that many DIYers become DIYers because they are passionate about building sustainable homes and employing modern energy efficient technology in them. They traditionally have been our pioneers in sustainable building.

The idea that these DIYers, many of whose jobs pay $NZ13/hour or less, should have to fork out large sums of money in supervision to the same registered builders who created our wasteful housing stock is at best a sick joke. That money is far better invested in double cladding, sustainable insulation such as polyester and double-glazing. Registered builders charge out rate is $NZ60 an hour and more. That $NZ60 represents 5 square meters of ply-bracing gone or a pane of double-glazing reduced to a single pane. Four hours of legislated “supervision” is nearly 20 square meters of 200 mm thick of blanket polyester insulation gone.

Worse, Lianne would have condemned poorer New Zealanders to watching their houses fall apart around them. Congratulations Clayton.

This weeks Junk Joules award goes to the New Zealand Parliament and in particular the Hon David Parker. David has assumed the divine mantle of “Minster of Energy” and last week announced that the NZ Government is seriously looking at an “emissions trading scheme” i.e. carbon trading, offsetting, carbon neutrality etc.

The carbon-trading concept contains a fundamental and lethal psychological flaw in that it generates disconnection and displacement. It is spiritually bankrupt and, unlike a carbon tax, carbon trading effectively means participants place zero value on carbon. It destroys concepts of stewardship in the general culture and especially in our schools.

Carbon trading has already generated large rorts at the expense of poor people around the world. Expect the rorts to go exponential. I suggest the Minister go and see the movie “Enron- the smartest guys in the room” to see how the wheeling and dealing will go.

And you say are going to promote the trading of all of what you call “greenhouse gases”. I find the idea of trading the water vapour emissions is mind-boggling - but then you are after all the Minister of Energy and I am a mere mortal, a fleeting energy form.

Well David, as you teach and preach so you reap. I suspect the confusion you are generating will mean Parliament is reaping us all a whirlwind of junkjoules. It does not bode well for the Labour Party next election. The decision to continue with Parliament’s policy of placing near zero value on carbon will fuel addictive uses of resources such as oil and Gas. The resultant economic blight can only grow between now and the 2008 election.

The Bonus Joules cartoon was created in the aftermath of New Zealand’s so-called “energy crises” in 2003 (and 2001) when demand for Bulk-generated electricity exceeded the supply capacity. Bonus Joules has been in the basement of Parliament consuming the resource as inefficiently as possible to stop something called The Economy collapsing. This activity is against the nature of Bonus Joules. Bonus Joules decides the time has come to stop such activities…


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