Uncertainty in the electricity sector is one of the driving factors behind a decision by Tauranga Energy Consumer Trust trustees to propose an end to issuing of the TECT cheque.
Speaking to SunLive, TECT chair Bill Holland says he and his fellow trustees have been discussing the matter for over a year.
He says it was his idea to move the trust towards a 100 per cent focus on charitable contributions.
“I’ve been unhappy and concerned with the situation we’re in. As a trustee I think we have a responsibility to look at the big picture. When I spoke to the other trustees they all agreed something needs to change.”
He says among other issues, there is perennial uncertainty in the electricity sector due to the risk of government interference.
“Two years after I came onto the board, our shares were worth around eight dollars. Then Labour and the Greens came out with a policy [NZ Power, which would have purchased all electricity generation for the country] and the price dropped to six dollars. Now, they didn’t get in at that election, but it shows what can happen.
“Power prices are very political – just last year we had someone from New Zealand First saying the government should be buying back the electricity companies.”
Bill knows all too well the effect press releases can have – Trustpower had almost four per cent of its value wiped from the share market on Thursday morning when news of the TECT trustees’ proposal broke. TECT, a major shareholder in Trustpower, lost around $20 million.
“It’s probably a good time to buy Trustpower shares,” he says.
However, he doesn’t believe the proposal will have an adverse effect on Trustpower, if TECT consumers vote in favour of it.
“Trustpower is very good company, and it’s as well-equipped as any other company to deal with the markets it is in.
“We have 58,000 consumers in our region, versus around 260,000 Trustpower customers nationwide. So we’re talking around a fifth of their business – it’s not like all of their money comes from Tauranga.
“There’s also an assumption that every Trustpower consumer in Tauranga will suddenly leave. But why would they when they still have the TECT cheque for the next five years? They might leave in five years’ time, but why would they if the price is the same as other electricity providers, which it should be?”
If the proposal is accepted by TECT consumers, Bill expects the $2500 cheques to be paid out ‘as soon as the High Court approves the process’.
“We’re hoping that’s by September.”
In regards to how the trustees came up with the figure for the one-off payment, he says it was a difficult number to land on.
“It’s more than five year of TECT cheques up front. What we’re trying to work out is intergenerational fairness. This trust potentially has another 125 years to run, so it’s not just for the benefit for the consumers of today, it’s supposed to be for the benefit of consumers for the duration of the trust.”
Bill says the current estimation for the cost of the initial $2500 pay out, plus the five years of $360 TECT cheques up until 2023, is around $250 million.
In regards to how that initial $2500 will be found, he says TECT has ‘a range of options’.
“We don’t have to pay this out until September. We have a diversified share portfolio of $170 million, which we could sell, or we could sell our Tilt Renewables shares, although we’re in no rush to do that.”
Consultation has already begun with TECT consumers, who should have received emails informing them of the proposal. Information packs have also been mailed out.
“I don’t think it will escape anyone’s notice. Some people have seen the headlines and thought it’s terrible the TECT cheque could be ending, while others are excited to possibly be receiving $2500.
“What we really want is submissions from Trustpower consumers in Tauranga. They’re the only ones who have a say on this, and their thoughts count.”
He says they have already had 120 submissions on the TECT website by Thursday morning.
“We call for submissions every year on other matters, and never get more than 100 responses, so this is great.”
The entire process is expected to be done and dusted before the TECT elections in July 2018, when three of the trustee positions will be up for nominations. Bill doesn’t expect this issue to be a feature of the elections, however, despite all trustees putting their support behind the proposal.
“If the vote is ‘yes’, I presume the people will be happy and re-elect the incumbents. But if the vote is ‘no’, then we won’t be changing it, and so they should still vote for the incumbents. But the election of trustees shouldn’t be on a single issue. That’s why we’re treating it as a separate ballot.”
Criticism has been levelled at the trustees for not offering consumers other options besides transforming TECT into an entirely charitable trust. Wrapping up the trust entirely and paying out a larger lump sum is one such option, but it’s not one Bill is willing to entertain.
“There’s no way we’re winding up the trust, it hasn’t reached that point. The argument then would be how much should be paid out to current consumers? If you want intergenerational fairness, you might pay out $250 million, which is what they’re getting anyway. There’s no way consumers would be paid out all of it, because it’s not just current consumers who are entitled to it.”
He says trustees looked at potentially paying out different amounts to consumers depending on how long they had been with Trustpower, but that proved too difficult to calculate when other factors, such as divorce, were taken into account.
As for the financial effect the proposal might have on Trustpower if it were to go ahead, Bill is unsympathetic.
“Trustpower is different to TECT. They’re a commercial company that exists to maximise its profits for the benefit of its shareholders. It is not there for the benefit of its customers, to be frank. We are not here for the benefit of Trustpower, we are here for the benefit of Trustpower customers in Tauranga,” he says.
“Trustpower shouldn’t be relying on the TECT cheque to maintain their market share. They should do that on their pricing, like any other business.”
If TECT transforms into an entirely charitable trust, Bill expects contributions to local charities could increase by three times as much, from $8 million to around $25 million.
For Trustpower CEO Vince Hawksworth, the issue is an important one for consumers because it will be irreversible.
“You won’t be able to turn the clock back. It will affect 55 years of distributions, because that’s how long the trust has to run.”
He says he’s surprised by the decision, as it will affect Trustpower’s share value. He’s also disappointed only two choices are being offered to consumers.
“At the moment people are only being offered the status quo or a specific change, which comes with an inducement. But it forgoes benefits for future consumers in the next 55 years.”
He says the 125 year figure Bill talks about is only possible with the proposal. If the TECT cheque continues to be paid, the trust is due to wind up in just over half a century.
“We think consultation by the trustees is good, but there should be a range of options, not just leading people to one option.”
He takes issue with the notion Trustpower ‘relies’ on the TECT cheque to retain customers in Tauranga, saying it is actually consumers who benefit the most.
“It definitely helps with loyalty, I don’t argue with that. But it’s not the only reason people stay with Trustpower. Obviously we will deal with the outcome whatever it is, but many of our customers take telecommunications products with their electricity, and some take gas as well.
“Our analysis is that the small users of electricity on fixed incomes will be worse of as a result if the cheque is taken away. Even if a customer switches to a lower provider, they will be worse off than if they had remained with Trustpower and kept the TECT cheque.”
In comments to the media, the Trust has also said that if its proposal is implemented ‘the original intention of the trust can be fulfilled’. Vince says the original intention of the Trust was and is to benefit the customers of Trustpower, which was formed following the electricity reforms of the 1990s.
The Trust has also stated TECT has since 1993 been charged with distributing its shareholding proceeds to consumers and the community – another false assertion, according to Vince.
“The Trust deed is explicit it is for the benefit of Trustpower customers,” he says.
Vince also describes the reasons outlined by the Trust for the proposed radical change as ‘complete nonsense’.
“If TECT are genuinely concerned about increasing risk to Trustpower in the electricity industry – and we fundamentally disagree with them on this – then they should be diversifying their investment portfolio, not changing who benefits from Trustpower’s success,” he says.
Given the misinformation, there are also concerns about the transparency and fairness of the consultation and vote process, says Vince, while the proposed timeline of events for reaching a decision ‘does not make sense’.
“TECT are proposing consultation, then a decision on the proposal, which will be put to a vote,” he says. “After that they’re suggesting going to the High Court to see if their actions to stop the TECT cheque and wind up the Trust are legal.
“If there are legal issues to be resolved – and I believe there are – then TECT should go to the High Court now before spending our customers’ money on an expensive consultation and vote process.
“We renew our call for TECT to present more information and more choice around possible changes to the way they distribute the TECT cheque during the consultation period before seeking a mandate to implement radical change.”