Bay energy consumers will soon decide whether to end their long-standing annual TECT cheques in a binding referendum. But stakeholders believe misconceptions about Trustpower, TECT, and the relationship between the two are clouding debate. Dawn Picken reports.
Proposal Snapshot
TECT trustees late last month announced a proposal that Trustpower consumers stop receiving annual cheques in favour of a $2500 payout later this year, followed by annual cheques of around $360 for five years.
Trustees say they're trying to future-proof the organisation in a climate of rapid technological and political change. They want to change TECT from a consumer trust representing Trustpower's roughly 58,000 consumers in the Western Bay to a charitable trust that distributed its income to community groups.
But Trustpower officials say it's unfair to ask customers to give up $20,000-$30,000 worth of TECT cheques over 55 years for only $4300.
History
Trustpower has its origins in Tauranga's first power station established in 1915 and was incorporated in 1992 in response to deregulation of the energy sector.
The Tauranga Energy Consumer Trust (TECT) was established in 1993 to hold Trustpower shares for the benefit of Trustpower's customers in Tauranga and Western Bay of Plenty. TECT ensures local electricity customers own part of the business, and the TECT cheque ensures Trustpower's success is shared with its local electricity customers, according to Trustpower chief executive Vince Hawksworth.
TECT is one of New Zealand's largest energy trusts. It has returned millions of dollars to consumers and the Western Bay community over the past 25 years, funding community amenities such as buildings and sports centres; community development by covering equipment and operating costs; and community events, such as the Tauranga Jazz Festival and AIMS Games.
TECT and Trustpower – Separate Entities
The Bay of Plenty Times Weekend spoke to TECT chairman Bill Holland Wednesday evening shortly after he and other trustees had finished a community consultation session in Te Puke.
Holland says there's "huge confusion" about the relationship between TECT and Trustpower.
"People say, instead of paying out a cheque, why not reduce power charges? We're just a 26 per cent [26.8 per cent, according to the TECT website] shareholder of Trustpower. We're not in charge of what Trustpower does. People are completely confused about that."
Trustpower chief executive Vince Hawksworth agrees. He wrote in a piece published in the Bay of Plenty Times Weekend on February 3: "Up until now most people believed Trustpower and the trust were one and the same. Thanks to the proposal many now understand we're separate entities: TECT distributes the money as a result of the dividends it receives because of the success of Trustpower."
Hawksworth told me Thursday during an interview at the company's Tauranga headquarters confusion is reason enough for TECT to extend the public consultation period beyond March 1.
"The letters have only arrived over the [last] weekend … people are being asked whether they support the proposal or they don't. It doesn't encourage people to say what other things they support or don't."
Hawksworth wants formal public hearings where different views can be aired, rather than drop-in information sessions.
"A greater level of transparency than what's occurring would greatly enhance the quality of the discussion and debate."
Holland says the April vote on the future of TECT cheques is necessary to avoid clashing with trustee elections set for June.
"We want to get the process over and done with well before election of trustees. They're two separate issues and I wouldn't want it to become an election issue."
End the Freebie
Reasons to stop the annual cheques are spelled out on TECT's website (www.tect.org.nz). Trustees, says Holland, voted unanimously on the current proposal, which gives Trustpower consumers the final say over whether to wind down the cheques or continue them.
Holland cites three main reasons for the plan, the first of which is rapid technological change in the energy sector. He says more people are using solar power; entire communities exist off-grid; and potential closure of an aluminium smelter near Bluff would result in a lot more electricity supplied throughout the country.
The second reason is regulatory. Holland says coalition Government partners are discussing an electricity pricing inquiry.
"I'm not trying to scaremonger; I don't know what the inquiry will come up with … but the impact on the energy sector has the potential to be significant."
A third reason is potential future uncertainty about who will own Trustpower shares. Wellington investment firm Infratil owns 51 per cent. Holland says if Infratil chooses to sell, the new buyer might not issue dividends, which would affect TECT's ability to deliver cheques.
"We as trustees are unanimous doing nothing is not an option. When change is going to happen, it's better to do it on terms that are good for you."
The TECT proposal would see its fund ($820 million, according to Holland) used for community grants. In 2017, organisations received 20 per cent of TECT funds, while Trustpower consumers got 80 per cent. Starting next year, TECT would triple funding for community groups from $7.7m to around $25m per year. Recipients this funding year include Bay Oval Trust ($1m); Omokoroa Sport & Recreation Society ($400,000); and The Elms Foundation ($250,000). Grants ranged from $703 (Katikati Community Baptist Church for a computer) to the $1m for Bay Oval facility improvements.
With three weeks to go before the end of the five-week consultation period, Holland said more than 1300 Trustpower customers have sent in submissions.
"Clearly, they're in favour of it. More than 50 per cent – it's way more."
Trustpower consumers who've held a power account with the company from January 1, 2018 continuously through to June 30, 2018 within the TECT district would be eligible for the one-time $2500 payout and subsequent $360 cheques over five years if the trustees' proposal passes. The average TECT cheque last year was $497.
Welcome Bay's Noel Pope, in a letter to the Bay of Plenty Times (February 5) congratulated the TECT trustees' plan, calling it generous. "The proposal brings certainty to the considerable asset base that has been built up by TECT over the last 25 years … this proposal would make everyone a potential beneficiary in some shape or form of a substantial charitable trust and the value of that should not be lightly overlooked …"
Craig Greenlees wrote on February 6 he thought the TECT structure that has worked in the past may not be appropriate for the future. "It seems inevitable with quickly improving electricity storage technology and the rapidly declining cost of renewable/solar energy that the energy sector are in for a turbulent time."
Greenlees says his own business used a substantial amount of power and found they could save considerably by looking elsewhere in the market. "Perhaps all of Tauranga/Western Bay electricity consumers could do the same with an unsubsidised, level playing field local electricity market."
Hawksworth wants other options on the table beyond pay out versus status quo. He believes a $2500 lump sum will sway votes.
"That amount of money makes a heck of a lot of difference in one day to a lot of people. So I can understand. By posing that question we've missed the opportunity to do something better."
He disputes the idea Trustpower consumers pay more than other energy consumers for electricity. "It's not difficult to find examples of consumers, if the cheque disappears and they go to other players, who would be worse off. It takes away from the core discussion: what should the future of TECT look like?"
Holland says presenting other options would be too complicated, though he says trustees want to hear consumers' ideas.
"We have a very open mind about this. It's not perfect. But it's a very good starting point. We'll take into account their views. We're never going to please everybody. We'll go to a vote on the proposal – yes for change or no for status quo and we will follow whatever the wishes of the people are."
Many of those wishes appear on the Bay of Plenty Times Facebook page, where some writers said they'd leave Trustpower if the cheque does. On TECT's own Facebook page, Nancy Baird of Katikati wrote, "Leave things are they are. I have been with Trust Power [sic] for years and years. If they change things I WILL CHANGE POWER COMPANIES."
Tauranga resident DL Gibbs, in a letter to the Bay of Plenty Times says stopping the cheques would mean a $500 drop in household income for Trustpower customers, while Tauranga ratepayers who buy power elsewhere will not experience a change.
"Over the remaining 55 years, your TECT cheques will equal approximately $27,500, and TECT propose to furtively buy that entitlement for $4300."
Gibbs wrote loss of the cheque will result in less revenue for TECT, creating a decline in charitable distributions.
Share Price Impact
The perceived impact of the proposed TECT cheque phase out on share prices is another point of contention. Hawksworth, in a Bay of Plenty Times article last week, says the announcement wiped $42m from the value of TECT's investments and $200m off the value of Trustpower.
"The market does not like uncertainty, and at the moment there is no clarity on the why or the outcome."
Trustpower has threatened legal action to stop TECT from becoming a trust that was no longer accountable to Trustpower customers in the Western Bay. TECT could sell Trustpower shares without going through what he calls a "values destruction". He says the consumer trust has another 55 years to run.
Holland says an act in Parliament this year will extend the trust another 100 years. He disputes the idea Trustpower's shares have fallen because of the proposal to discontinue cheques. And, he says, TECT has no plans to sell its Trustpower holdings.
"Of course Trustpower shares would take a bit of a dip. It's nowhere near the dip when the Labour/Green policy [of 2013] came out."
Holland says a proposal by political parties to regulate electricity prices resulted in the price of Trustpower shares dropping from around $8 to $6.40 in 2013. When National was elected, he says the share price returned to where it was. Coalition Government partners are once again discussing an electricity pricing inquiry, he says.
"I'm not trying to scaremonger; I don't know what the inquiry will come up with…but the impact on the energy sector has the potential to be significant."
Hawksworth says Trustpower has already weathered technological, structural and government shifts. "The TECT cheque was $20 in 1994 and $490-something last year and all of that has come because Trustpower has successfully navigated that change and we'll successfully navigate change in the future."
Holland says Trustpower shares on February 2 were priced at $5.40. "As of the 31st of March … they were worth $4.60. They went from $4.60 to $6, then came down when we made our announcement to $5.40. We have every confidence the shares will come right again to a certain extent."
Tauranga consumers, he says, make up just a small part of Trustpower's business. The company has about 270,000 customers nationwide and is the country's fourth leading telecommunications provider. Holland says Trustpower made most of its money from other businesses, including generating electricity. "If people are selling now, they may find they're doing entirely the wrong thing."
The company's share price at the close of Friday (9th February) was $5.16.
One investment expert, writing in the Bay of Plenty Times Weekend on February 3 said investors' response to the TECT proposal has been negative. He says Trustpower's share price fell 10 per cent, from $5.92 to $5.33 since the announcement.
Milford Asset Management executive director Brian Gaynor says Trustpower had stalled in recent years, "… for a number of reasons including increased competition in the electricity industry and costs associated with its expansion into the broadband sector."
Gaynor says while the idea of tripling community grants is a worthy gesture, it would effectively transfer income from electricity consumers to community and charitable groups.
"Trustpower has a loyal customer base, partly because of this annual [TECT cheque] distribution, which has allowed it to charge above average prices to customers. Investors are concerned that the removal of annual distribution will have a negative impact on customer loyalty and losing customers."
He says Trustpower could respond by lowering prices, which would hurt profitability and dividend distributions.
Next Steps
Trustpower has threatened legal action to stop TECT from becoming solely a charitable trust. TECT is holding community consultations and taking submissions on the proposal until March 1. Trustees are set to decide on the final proposal on March 9 before putting it before the public later that month or in early April.
Trustpower customers will have until late April to vote. Holland says if the decision is status quo, "that's the end". But if customers choose to phase out the cheque and change TECT from a consumer trust to a charitable trust, TECT will apply to the High Court to have the decision re-affirmed. "We've already had two legal positions saying what we're doing is fine."
If Trustpower consumers vote to approve the TECT proposal, the pre-Christmas cheque to TECT consumers would end from January 1, 2023.
Many consumers say they remained with Trustpower because they could buy packages including gas, internet, electricity and home phone service. But record numbers of residential power company switches have been happening in Tauranga. There were 9794 switches between January 1 and December 31, 2017 – up from 9472 in 2016. Trustpower experienced the highest number of losses, with 2415 switches to another company in 2017.
Website Powerswitch listed Trustpower as the most expensive power company in Tauranga. But a Trustpower official says Powerswitch tracked trends in prices rather than calculating actual consumer savings.
"Trustpower is also based in Tauranga providing significant employment and support in the community and have a very long relationship with many of our customers, which means that new competitors coming into the area have to undercut us to win customers," says general manager, markets, Craig Neutroski.
Tauranga Budget Advisory Service manager Diane Bruin says the difference between power companies could amount to $500 a year. She suggests visiting www.powerswitch.org.nz with your power bill to compare prices.
Tam McDonald switched power companies this year.
Tauranga's Tam McDonald, in a Bay of Plenty Times story Wednesday, says he and his wife used the Powerswitch site to compare prices and switched from Trustpower to Genesis.
"I was with Trustpower for the power and Genesis for the gas. The power bills were getting up, there's only two of us at home, and the bills were approaching $200 at certain times of the year plus $100 on top of that for gas."
Value of TECT investments prior to restructuring announcement
