Lucky deal locks in lower power bills

While the rest of us face paying more for electricity, MARK REYNOLDS says one city can congratulate itself on its foresight.

The Christchurch City Council signed a fortuitous deal to lock in its electricity prices for three years, just three months before it sold its power-supply company to TransAlta New Zealand late last year.

While householders and businesses around the country now face power price rises of up to 13 per cent from TransAlta, the Christchurch council's lucrative electricity supply agreement has two-and-a-half years to run.

The deal with supply company SouthPower was so significant that it was included as a material asset in the agreement for sale and purchase of SouthPower - even though it was still being finalised.

TransAlta, which was the successful bidder for SouthPower, had to sign an agreement which confirmed "for the avoidance of doubt, the agreement based on the SouthPower tender is intended to be a business contract.


The Christchurch City Council inventory manager, Merv Altments, said yesterday that the deal was "a commercial agreement and nothing else".

Mr Altments said the agreement came into effect at the beginning of last August, but the contract for TransAlta to buy SouthPower's retail operations last November showed SouthPower and the council were still finalising the final form of the written agreement.

He said the electricity purchase contract was significant enough to be material to negotiations over the sale of SouthPower.

"Because it was a significant contract, it was something that any prudent company wanting to buy another company would want to have a look at."

The city council owned 87.6 per cent of SouthPower, which sold its retailing business to TransAlta because of changes to electricity laws last year. The remaining network parts of the business have changed their name to Orion and are still owned by the council.

Orion was in the headlines last month after TransAlta accused it of raising network charges for householders in Christchurch and intimated that this was part of the reason for its price increases.

But energy analysts have suggested that TransAlta had to increase charges to make a return on the high prices it paid for businesses like the SouthPower retailing assets.

Mr Altments said the Christchurch council had expected some flak over its long-term power supply contract.

It went to the trouble - and "considerable expense" - of contracting top Bell Gully lawyer Peter Castle to audit the whole process of negotiations between the council and SouthPower, which it owned. Bell Gully also drew up the electricity supply agreement.

The agreement sets the price for most of the electricity bought by the council for 12 months, with two rights of renewal for 12-month periods at the council's discretion.

It covers the council's purchase of power for street lighting, traffic lights, water supply and large facilities like the Canterbury Public Library, the QEII sports stadium and council wastewater and water-treatment facilities.

The power prices now paid by the council include just 0.52c a unit for water-supply operations (which use power at off-peak times) and 4.049c for public outside lighting. The rates for the council businesses vary according to when power is used, but they are significantly below what was then SouthPower's standard electricity retail pricing schedule.

When many retail power companies were sold last year, the purchase agreements included a freeze on power prices for householders for up to three years. The sale of SouthPower did not include such an agreement.

TransAlta officials were not available for comment yesterday.