Dialogue: Energy trust vote carries vital issues

By GRAEME EASTE*

Despite widespread privatisations, many assets remain in public ownership - ripe for the flogging, some think.

Residents of Auckland City, Manukau City and Papakura District still jointly own their electrical supply infrastructure through the Auckland Energy Consumer Trust.

The trust once owned Mercury Energy. But Max Bradford's 1998 reforms forced it to sell the energy side of its business, retaining the lines under the name Vector.

Although officially worth $1.1 billion, Vector's assets are so keenly coveted by the market that the potential value is nearer $2 billion.

The five trustees are elected by electricity consumers in the area to guide the Vector board in its policies and operations. An election for new trustees will be held next month. There are 23 candidates.

The two key election issues are whether to restart the Ohug (overhead to underground) programme of removing power lines from our streets, and how best to pay for it.

While most candidates, to a greater or lesser extent, support undergrounding, there are major differences on where the money for this programme should come from.

Theoretically, the public will be consulted about both matters in due course, whatever the election outcome. But, as much of what passes for consultation involves only token reference to affected parties and community concerns, it is crucial that we know enough about these issues to elect the right trustees now.

There is widespread support for having the remaining overhead power and phone lines put underground. Apart from removing a major visual blight on our streetscapes, there would be reliability and safety benefits.

However, it will be very expensive. Undergrounding costs up to $500,000 a kilometre of road, plus a $35,000 to $40,000 cost to the council for street lights. In addition, up to $175,000 of residual value in the existing lines and poles is largely written off. To complete the task will require an investment of up to $400 million.

Most of our suburban streets are still cluttered with overhead lines.

According to Vector, 64 per cent of its power supply (including major feeder lines) is underground, but 69 per cent of its street reticulation (the 400-volt lines that run along most of our streets) remains overhead.

Power lines for new roads and subdivisions in the Auckland area began to be laid underground in the 1950s, but the practice was not widespread until the late 1960s when it became mandatory.

The undergrounding of existing overhead power lines was started 30 years ago by the former Auckland Electric Power Board and continued by its successor, Mercury Energy.

Wherever existing power lines have been put underground, telephone lines and street lights have been dealt with at the same time.

The Ohug programme has mainly affected the central business district, suburban shopping centres and most arterial roads. These works were paid for by the company out of its regular income and cost almost $30 million a year at its peak until it was suddenly abandoned in June last year.

At present there are no plans or budgeted funds to continue, although a one-off programme is under way in Orakei, where houses in 11 streets have safety problems.

Vector's statement of corporate intent for the latest March year stated that this year it would lead talks with customers and local authorities about ways to underground existing lines where the beneficiaries were willing to meet the costs involved.

However, apart from some informal talks with council officials, there has been no such consultation. The stated policy is, in any case, inherently unworkable because only a minority of residents are likely to be persuaded to pay about $6000 a household to have a section of their street undergrounded.

This is quite apart from the inefficiency and extra cost of doing the job a few houses at a time.

Vector's management acknowledges that getting households to pay for their own undergrounding voluntarily will have only a minor impact. Its staff have proposed instead to fund and do the whole job in five years.

Wonderful. But hang on: where do we get the $400 million to pay for it? Well, there is only one practical way to raise such a large sum in a hurry. It requires the trustees to sell off part of our equity through a share float.

The chief executive and some of the existing trustees have made public statements endorsing such a scheme as if there is no alternative. They say: "Trust us, we wouldn't sell more than 20 per cent."

Do we want such people to remain in charge of our assets? Since 1992, they have indulged in a series of failed gambles. About $500 million has been lost on unsuccessful takeover bids (for Power New Zealand and Enerco Gas) and deals have been written down (the ill-fated expansion into power generation and the pre-purchase of electricity supplies).

In fact, we do not need to sell anything. Vector already has a cashflow sufficient to cover the cost of undergrounding if it was spread over a decade.

Vector generates a cash surplus which is returned to its customers as a dividend.

If the job is spread out, there would still be enough to pay a reduced dividend, even after funding the undergrounding programme.

* Graeme Easte, deputy chairman of the Western Bays community board, is a long-time campaigner for undergrounding lines.