Dialogue: Vector's payout has nothing to do with reliability of network

By WAYNE BROWN*

In trying to explain the Auckland City Council investment committee's decision to appeal against the High Court decision on the distribution of Vector's dividends, councillor Kay McKelvie regrettably has it wrong.

Vector has until now stayed out of the dispute between the councils and Vector's shareholder, the Auckland Energy Consumer Trust, but now it needs to respond to her Dialogue page article to rectify misleading perceptions she has created.

There are some things in this debate that are crystal clear. The first is that the payment of dividends by Vector for distribution to its customers by its trust owners will not have any bearing on the reliability of the supply network. To imply otherwise, as Kay McKelvie has done, is a fundamental misrepresentation.

The company is run by an experienced board of directors, appointed for their expertise and competencies by the trust as owners. The directors decide how much dividend to pay to the trust. And, as Vector's statement of corporate intent clearly states, we pay surplus funds only after all investment needs are met to maintain the integrity of the network and development of the company.

Once the dividend is paid, the trustees decide what they do with it.

After the 1998 central Auckland power failure, a ministerial inquiry recommended, among other things, that the company's directors should contain experienced engineers, which it now does (I am one of them). Subsequently, after substantial capital improvements, security has been enhanced and reliability has improved dramatically.

As our annual report has recorded, the past two years have provided record reliability and we target further improvement. Average minutes without supply for each customer has come down from about two hours to less than one hour in just two years, and we are looking to attain a figure of 45 minutes this year.

This dramatic reduction should not be surprising. Management has been clearly focused on security and reliability and has been backed by a board that has ensured the capital is there to carry out the major works required.

Capital expenditure on network improvement has amounted to nearly $200 million in this time, including not just the $130 million on city-centre reinforcement but a range of projects touching all parts of our network. The projects which have delayed motorists along Remuera Rd, Sandringham Rd, the airport environs and elsewhere are but a few of these.

While these projects have been carried out, the directors of Vector have also produced consistent profits. This has allowed us to pay strong dividends to our shareholder, the trust.

The dividend decision is made by the directors of the company, who share a mixture of engineering, finance and large business experience. They are the best judges of the capital requirements of the company and will not compromise either its growth potential or the security of its network.

In the wake of the inquiry, the potential for conflict between the roles of trustees and directors was intentionally taken out of the equation by a decision that trustees could not also be directors of the company.

Having made that distinction, it would be ridiculous to have to consult elected officials or councillors before we, say, upgrade a capacitor bank or some other technical equipment they do not understand, or decide what can be paid as a dividend.

Common sense says this would be both unnecessary and unworkable.

Justice Paterson, of the High Court, clearly understood this when he said he accepted the evidence of our chief executive that actions taken by councils have made it very difficult for directors of Vector to carry out their functions and fulfil their obligations to ensure that Vector operates as a successful business.

Justice Paterson also noted that the councils' fears that Vector might be left as a shell at the end of the term of the consumer trust were groundless.

As he said, Vector is required to run as a successful business and has an experienced board of directors. And he went on to say that payment of the relevant dividends will not pose any threat to the maintenance of a modern and reliable electricity distribution network.

This is precisely what the board of Vector considered - ensuring the ongoing reliable operation of the network before it paid the dividends to the trust.

We do not have any view on how the trust should distribute them. That is absolutely not our role. But it is important that the public knows the dividend matter is completely unrelated to security or reliability of our network.

Meanwhile, the value of the company has improved strongly and so long as Vector retains a board that contains the necessary experience, it will continue to do so.

* Wayne Brown is chairman of Vector, Northland Health and the Land Transport Safety Authority and has lately been appointed by the Government to replace the board of Tairawhiti Healthcare.