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Electricity and Gas Industries Bill: First Reading

Pete Hodgson Speech: Electricity and Gas Industries Bill: First Reading

I move that the Electricity and Gas Industries Bill be now read a first time.

I will be recommending that the Bill be referred to the Commerce Committee for consideration.

In the interests of providing certainty and stability for the electricity and gas sectors, I believe it is important that this Bill be passed without undue delay. To facilitate this, I will seek leave for the Committee to sit during the sitting hours of the House.

The electricity and gas industries are critical to New Zealand’s economic growth. The Government's policy objectives are set out in the Government policy statement on the gas industry, released in March 2003 and the draft Government policy statement on electricity, released for comment in September and due to be finalised later this year.

This Bill updates the statutory framework to give effect to Government policy decisions on electricity supply security and on governance of the electricity and gas industries.

It reflects the Government’s overall objective to ensure that electricity is delivered in an efficient, fair, reliable and environmentally sustainable manner to all consumers. It also reflects the Sustainable Development Programme of Action and other relevant government strategies, such as the National Energy Efficiency and Conservation Strategy and the Growth and Innovation Framework.

The inability of the electricity industry to reach agreement on self-governance arrangements has required the Government to take responsibility for industry governance. The gas industry is considering developing its own self-governance arrangements and it is important that back-stop legislation is in place should it be needed.

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The Bill amends the Electricity Act 1992, the Gas Act 1992, the Electricity Industry Reform Act 1998, the Commerce Act 1986, and the Crown Minerals Act 1991.

Amendments to the Electricity Act update the functions and results required of the Electricity Commission. Enhanced powers for ensuring security of supply are provided, including enabling the Commission to contract for reserve energy supplies. Existing electricity governance regulations relating to the wholesale market, generation, transmission, distribution and retailing of electricity are replaced by a more extensive range of regulation-making powers. These new powers, which are necessary now that the Government rather than the industry is the regulator, relate to securing and use of reserve energy, consumer protection, the promotion of retail competition, improved information for market participants, better hedge and contract markets and the development of distributed generation.

Recognising the importance of open access to processes for resolving complaints relating to electricity companies, the Bill requires all electricity distributors and retailers to participate in a complaints resolution scheme approved by the Electricity Commission.

The Electricity Industry Reform Act is amended to increase the amount of generation lines companies may own. This includes reserve generation and new renewables without limit, and other generation up to 25 megawatts or 10 per cent of maximum network load. The Bill also abolishes the unnecessarily restrictive requirement that generation owned by lines companies be connected to the line company’s network.

The establishment of the Electricity Commission means it is important to clarify boundaries between it and the Commerce Commission with respect to controls on electricity lines companies. The Bill does this.

In particular, all Commerce Act powers relating to Transpower’s pricing methodology are repealed, and the Commerce Commission must not set quality standards for Transpower. The Electricity Commission will hold these responsibilities.

Further, the Commerce Commission will have to take account of electricity governance regulations before exercising any of its control powers in relation to quality standards applicable to Transpower, pricing methodologies for lines businesses, and levies payable.

The Bill also provides for the transfer to the Electricity Commission, by Order in Council, of all Commerce Commission powers in respect of the control regime for electricity lines. These powers can be transferred, either for Transpower or all distribution businesses, only after 31 December 2005 and if certain specified tests are met. The Electricity Commission has an enormous workload in front of it and in the meantime it makes sense for the Commerce Commission to complete its current work on the control regime for lines companies.

The Bill seeks to provide a consistency to the regulatory framework covering the gas and electricity sectors, reflecting the linkages between them. Its regulatory powers in respect of the gas industry may be further refined as we work through the legislative process in parallel with the industry’s efforts to define its preferred governance arrangements.

The Bill includes provision for the Electricity Commission to be expanded to govern gas if necessary, and for it to be renamed the Energy Commission in that event.

The Bill amends the Crown Minerals Act to provide regulation-making powers enabling more extensive disclosure of information relating to gas and oil reserves. This will enable improved investment decisions and enhanced security of electricity supply, given the importance of gas for electricity generation.

Although the Bill contains an extensive range of regulation-making powers, the gas and electricity Government Policy statements make it very clear that the Government expects the Electricity Commission, and the Energy Commission if it is formed, to use persuasion, promotion and the provision of information and model arrangements to achieve policy objectives wherever possible. The regulation-making powers are there as an incentive for reaching voluntary agreements, to be used only if necessary.

The Electricity Commission will not be independent of the Government. That is deliberate, because the Commission exists to give effect to Government policy.

However the Bill includes amendments to the Electricity Act to provide a number of checks on ministerial powers. The Minister can no longer recommend a regulation or make a rule without a recommendation from the Commission. The Minister can no longer reject or defer a recommendation unless he or she considers this will better meet the Commission’s objective. The Minister cannot amend the Commission’s recommendations unless this still gives “substantive effect” to them. And the Commission is no longer required to consult with the Minister before making recommendations.

The prohibition on a Court from invalidating regulations or rules because of inadequate consultation has been deleted. However, to avoid a potentially chaotic situation, a six month grace period is provided before any regulations may be made invalid.

This Bill sets the legal framework for the next phase in the development of New Zealand’s electricity and gas industries. The Government looks forward to working further with the electricity and gas industries and consumer groups to ensure we meet the challenges of a sustainable energy future.

I move that the Commerce Committee consider the Electricity and Gas Industries Bill and that the committee have the authority to meet at any time while the House is sitting, except during questions for oral answer, and during any evening on a day on which there has been a sitting of the House, and on a Friday in a week in which there has been a sitting of the House, despite Standing Orders 193, and 196(1)(b) and (c).

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