Parties unite on removing LFC

by Felicity Wolfe, Energienews - Thu, 03 Aug 2017




The legislated low-user fixed charge has become a "middle-class subsidy" for electricity and needs to be scrapped or replaced, the country's political parties agree.

Labour Party energy spokesperson Dr Megan Woods says the most vulnerable families in terms of energy poverty in her Wigram electorate office are not small households with solar panels, but "very large families".

"They are probably living in uninsulated rental accommodation and they're the ones not getting the benefit, so I absolutely don't think it meets the needs that I think it needs to."

"It can be seen as a middle-class subsidy now."

Labour is yet to release an energy policy ahead of the general election next month. But speaking at the BusinessNZ Energy Council's panel of political energy spokespeople yesterday, Woods imagined it would include "some language around the need to modernize it".

"It needs to be replaced," she said after being pressed by moderator Toby Stevenson.

Energy and Resources Minister Judith Collins also pointed to the failure of the mechanism to deliver benefits to poorer families. Those people people are now subsidising holiday home owners, she says.

"And I don't think that's fair."

The aim of providing cheaper rates for low-income households can be dealt with "in a far better way" through the welfare system. She suggested that could be through the community services card scheme "or some other form".

Outbreak of consensus

Those sentiments were echoed by all the other four party spokespeople taking part in the debate, which was hosted by BEC and Chapman Tripp in Wellington.

New Zealand First energy spokesperson Fletcher Tabuteau said the answer may come from a "conversation around community service card holders".

But he said he is also considering the problem of where the funding comes from. "Is it an obligation on industry? Are we going to go to the general tax pool?"

He couldn't specifically say what his party's policy would be, but acknowledges the LFC is not achieving its objectives.

"At this stage, in my opinion, we would need to scrap it and look at some alternatives."

ACT party leader David Seymour said the charge would be "gone by lunchtime". The Opportunities Party's energy spokesperson Geoff Simmonds also called for the tariff for households using less than 8,000 kilowatt hours per year to be scrapped.

"You fix fuel poverty by fixing poverty. You don't fix it through the electricity system."

The Green Party "got the ball rolling" on the issue in March when it pledged it would tighten the LFC regulations so only about 25 per cent of homes are eligible, energy spokesperson Gareth Hughes said.

Transformational or disruptive

While the parties agree the LFC needs an overhaul, the debate highlighted some broad differences between their priorities and approaches to issues facing the energy sector.

Collins stated she is very concerned with lines companies' ability to deal with the technological changes ahead.

While some distribution firms are planning for the integration of these "transformational or disruptive" technologies "the sector seems to me to be quite wedded to the existing technologies".

She again stated that distribution businesses investing outside their sector is "wrong and irresponsible".

"I am appalled that we have an EDB that bought a sock factory. I am appalled that we have one that bought a vineyard."

She also again highlighted her unease with the number of distribution businesses in a country "our size" and stated that the cost of distribution is "clearly quite high".

Collins also said that since becoming energy minister she has been shocked at the "exceptional legal fees" spent by the electricity industry "arguing about stuff that most people wouldn't care about".

"I understand that it is all to do with the money involved and the stakes. And I think you could have it a lot better if everyone wasn't quite so worried about their patch."

Simmonds agreed with some of the minister's concerns about EDBs saying there are issues with the parts of the sector "not open to competitive forces".

The Electricity Authority's work on moving the industry towards cost-reflective pricing is"part of getting the game right".

"Then you let the game play. Some people will perish and some people will flourish - that's creative destruction."

Dismantle the regulator

Tabuteau favours dismantling the Electricity Authority, saying his party would instead "empower" the Commerce Commission with greater resources and "better legislation".

The party, led by Northland MP Winston Peters, opposes the authority's proposed transmission pricing methodology which would place a greater cost on northern consumers who are benefiting from the work the past decade to shore up the grid's supply into that region.

Tabuteau says the electricity industry is "highly regulated, and perhaps overly regulated". New Zealand First favours more sharing of capacity and ideas, alongside stronger competition.Its fundamental question is "how is the end consumer winning as we move forward?"

New Zealand First would follow the current government's lead of supporting, enabling and empowering the industry – "not taking the lead".

"You do need to know that, if things are going in the right direction, we will not be an interventionist government, in that old sense."

Seymour says he does not believe the potential welfare gains of the authority's preferred TPM changes are big enough to warrant the wealth transfers involved.

While he and his party support the concept of user-pays and transparent processes to ensure competitive market outcomes, he said that the topic was not of interest in his Epsom electorate.

"I find myself in an awkward position between being a market purist and an Auckland MP."

ACT instead is focusing on other areas where "we believe more urgent change is needed", including housing, land-use reform and education. 


Hands off innovation

Seymour says having ACT and National in government provides the energy industry with clear market rules and stable policy so that the real innovators of the industry – "not us - that's you" - can implement technology changes and create new energy services.

Seymour disagreed with a statement by Tabuteau saying the government could show more leadership on electric vehicles by committing to replacing the Crown fleet with that technology.

Tabuteau says that would be 11,000 Crown cars entering the second-hand car market every three years.

Seymour says it is wrong for governments to "pick winners" in future technologies – "even if they just do it implicitly by purchasing a lot of vehicles for government departments at a premium and then selling them out into the market".

He pointed to the biodiesel "disaster" in the mid-2000's when there was an international race to plant fuel crops.

"Turns out it takes more energy to grow the food and make the energy than we get out at the other end."


Climate, dry-year conversations

Woods says planning to use taxpayers' money to buy international credits isn't a good option and she wants the country to start reducing emissions now in order to meet its 2030 carbon reduction promises.

She supported the recommendation by Parliamentary Commissioner for the Environment Dr Jan Wright that an independent commission be created to ensure that long-term carbon targets are set and met.

That would provide stability and certainty for industry making investment decisions around transitioning from fossil fuels to renewable energy sources.

"They need to know what those policy settings are."

Simmonds says the dry-year risk is one of the fundamental issues around New Zealand moving to a carbon-free electricity system. He is concerned that despite the current dry winter - which has driven up electricity prices and seen much more coal burnt at Huntly - the public generally doesn't understand it, he says.

"The only people I've talked to that have known about the dry-year risk are Flick customers. And I'm a Flick customer."

The spot-price linked electricity retailer brings the issue "front of mind" and customers know they have to manage energy use accordingly.

"That is the public conversation we need to have. Do we want to pay over the top electricity prices in order to be able to have as much power as we want any time, or are we prepared to manage demand?"


Oil, gas polarities

In response to a question about the Green Party's position on oil and gas royalty and tax settings, Hughes said lifting these to a total of 70 per cent, from 46 per cent, would bring them in-line with international averages.

Saying New Zealand is a frontier region for the industry ignores that there are other similar regions and the tax-plus-royalty rate here is the fourth-lowest in the world, he says.

New Zealand will "never be Norway" in terms of a sovereign wealth fund, but the Greens say increased royalties would be a step in the right direction to meeting our carbon-zero by 2050 commitment.

The party wants to use money from the industry to establish a green investment fund to encourage more renewable energy projects.

Hughes would ban deep sea exploration, but is "open to shallow and on-shore drilling". He's keen to work with the industry to ensure high environmental and safety standards are in place.

Collins says New Zealand is a "very high-cost place for exploration because of our standards". Adding to that cost would "stop all exploration". That would mean no money coming in from the sector for health and education.

"Exploration companies have spent about $8 billion in the last few years in New Zealand."

Tabuteau says New Zealand First agrees with the current position taken by National on gas, oil and other extractive industries.

Petroleum will be around as fuel for many years to come – and will remain essential for many non-fuel aspects of modern life.

"We need the extractive materials to help move us forward, even in the pursuit of renewables."

"We can't cut off our nose to spite our face."