Dialogue: Vector cash may have costly strings attached

By KAY McKELVIE*

There is nothing so attractive for politicians as being able to hand out rewards to electors. Few people could doubt that if the electricity consumers of Auckland were to receive about $600 for each power account they hold with Vector, feelings of fondness for sitting members of the city council would run high come election day.

On the other hand, in an election year, unpopular decisions become no less difficult for politicians to make. The conclusion arrived at by the Auckland City Council's investment committee to have the issue of distribution to consumers from profits on assets made by the Auckland Energy Consumer Trust considered by the full council on February 8 was one such difficult decision.

By voting to ask the full council to consider appealing against the decision of the High Court, the committee was focusing on the long-term and far-reaching benefits for the community, rather than looking for short-term political gain.

The best independent legal advice tells us that the decision of Justice Paterson was seriously flawed in a number of aspects.

We believe the judgment would allow an unstructured, unmonitored, and unchallengeable distribution of the proceeds of asset sales of Vector. For example, selling the city's power lines.

This would in the short term give Aucklanders a greater cash handout, but in the long term could rob the electrical infrastructure of this city of the money it needs for ongoing maintenance and improvement.

Put simply, our appeal is against the judge's decision to allow the consumer trust to distribute profit from asset sales. Auckland has already had one major power supply failure, and this judgment does nothing to prevent another.

Hence we are seeking a reconsideration to protect a crucial part of our city's infrastructure from the possibility of political interference, or the type of inadequate management of maintenance which resulted in the last power crisis.

We most definitely do not want to hold up the payment of the $150 million already identified by the trust for payout to consumers. The council agrees to the immediate payout of the dividends held by the trust, except for the $31 million said by the court to be capital profits. What is at stake here is the principle of keeping some capital for reinvestment.

We have formally written to the trust asking it to go ahead with the payment and have asked for its response before we go to council on February 8 for a final decision on whether to appeal against the judgment.

I have every confidence the trust will distribute the money and welcome the council's appeal to clarify their discretion on distribution. We are not fighting the trust; we are fighting a principle.

I do not want to deprive the citizens of greater Auckland their fair share of a substantial distribution of income from the profits of Vector. But the risk that further substantial distributions will erode Vector, and thus the trust's capital base, must be avoided.

Put simply, the High Court decision will result in cash distributions, even following the sale of a substantial part of the company's business, being treated as income. The effect of that will be on future generations of consumers who will be worse off than would have been anticipated when the trust was established.

The High Court decision has the potential for the company to avoid putting sufficient resources into maintaining and upgrading its distribution networks. We know what happens then. To our cost.

A comparison can be made with your own budgets. Should you spend all your income on consumables or should you save some to maintain your home and car? You are not losing what you save, just ensuring you have the spare cash to keep your car running smoothly. Or, if you own a house, ensuring that you can mend a leaking roof.

Aucklanders know that loss of power in a city this size is a catastrophe and it could happen again if the company does not have to reinvest in the lines that carry the power to every household in the region and to speed up the essential undergrounding programme.

It also has the potential for the company to make payouts every year for reasons of political expediency and so undermine its viability.

One other crucial aspect of this problem is that in a few years Vector may not consider the provision of domestic distribution power profitable, and so concentrate only on commercial consumers. In the same way, Tranz Rail has decided to get out of providing passenger services. Of course, Telecom makes no secret of its discomfort in providing non-profitable services to country people. Auckland needs protection from the possibility of such a decision being taken about our electricity supply.

The establishment of the Auckland Energy Consumers Trust attempted to give continuing benefit over the life of the trust to consumers. The requirement to hold a fair balance between different claimants similarly points strongly away from a windfall for this year's consumers, at the expense of consumers for the next 70-odd years, not to mention the capital beneficiaries, the territorial local authorities which, in the end, is each and every one of us.

But is this debate simply hot air? Should we consider only today and not future generations? Those who say yes ignore the failure of the Tranz Rail sale, as well as the loss in services, the monopolistic position enjoyed by Telecom, and the fiasco which has surrounded the restructuring of electricity supply and generation.

The Auckland City Council, Manukau City Council and the Papakura District Council were involved in the initial court proceeding to try to prevent wholesale distribution of the assets and income from the consumer trust.

The court did not agree.

After considering the independent legal advice given to the committee and taking into account that we are talking about assets worth $1.4 billion, the cost of proceeding with an appeal has to be put in perspective.

We would be derelict in our duty to Aucklanders if we were not to at least put this matter before the full council.

* Kay McKelvie is a member of the Auckland City Council investment committee.