John Collinge: Reliable power supply matters more than empire-building

COMMENT

Someone recently described Vector as a "pot of gold and everyone wants to get their hands on it". There can be no doubt that a float of shares in public energy utilities has great appeal to some.

Vector is 100 per cent owned by the Auckland Energy Consumer Trust, a body elected by energy consumers in the Auckland, Manukau and Papakura council areas. It owns the electricity lines in those areas, the lines on the North Shore and Wellington and other energy-related assets.

In reality, however, Vector is owned by the consumers themselves. They (in the name of the Auckland Electric Power Board) bought their lines from the forerunners of the Auckland, Manukau and Papakura councils in 1922 and have owned them since.

Consumer ownership means that:

* There is public oversight of the company to try to ensure security of supply to its consumers - that is, to guard against shortage and blackouts.

* A dividend is paid each year to consumers from the profits generated by the lines and other assets. Last year it was $155.

* Ugly overhead lines are moved underground at the rate of $10 million a year. This is designed to improve public safety and the look of the city.

A share float means, in effect, that the consumers' assets are being sold or used or pledged to buy other assets. By such method a company can become privatised - that is, control or partial control can pass from the public to private hands.

If the purchase of other assets is successful and the new assets produce profits, the consumers may expect a bigger dividend. On the other hand, if not successful or if minds are directed elsewhere, the sale may reduce the dividend and jeopardise the other benefits of community ownership.

A float of Vector will require the consent of the consumer trust and the five trustees are not likely to knowingly devalue the assets by making a wrong decision.

But the real question is: why are the trustees there? Is it to safeguard the electricity supply and the services provided to their customers, or are they there to use the consumer's assets to expand the company? If Vector were in private hands, the fear is that the emphasis would shift from energy consumer interests to profits and other activities.

There is no doubt about the answer to the key question. Ask any person on the street and they will say, often vehemently, that the important thing is the continuation of their electricity supply at the best price possible. They do not like this being risked by investments elsewhere. They want to own the assets, and the company to stick to its knitting and put expansionist dreams aside.

This is also true of the commercial community. They, too, are suspicious of selling and the directors concentrating on investments rather than their electricity lines.

People have not forgotten the lesson of the central Auckland blackouts, which is that rather than embark upon grand schemes and takeover projects, we should never forget that the principal purpose of the business is to keep the lines running.

There has been ample speculation of a float of 49 per cent of Vector, and of mergers and a back-door listing by that means. A new trustee has suggested a 65 per cent float to other trustees, meaning the trust would hold 35 per cent of the shares. As a sweetener, some shares would be given back to the consumers.

This approach misses what everyone thinks - stick to your knitting, do your job of securing supply and services to us at the best possible price and forget about grand schemes.

Proponents of expansion say there is a wide range of opportunities in infrastructure markets in Australia and New Zealand. Do consumers want to invest in water pipelines? Do they want to invest in infrastructural assets, such as marinas? Not likely.

Water is not an energy asset and marinas are probably better left to the Auckland City Council.

Do the consumers want to risk their assets in Australia? Based upon other experiences by New Zealand companies, I think not.

It has also been suggested the shares would be floated to pay for the councils (for their capital interest), who would then use the money on roads. Building roads is a good objective but it is not the trustees' role - which is to look after electricity interests of their consumers.

On the other hand, assets such as energy lines in New Zealand, particularly those contiguous to existing lines, have attractions. There may be synergies and they fall into the category of "the knitting".

An opportunity may appear to allow some generation of electricity. That might be attractive to consumers in that it could help to prevent shortages of supply.

Accordingly, whether there is a float should depend very much on the proposition in question. It should occur only if it is in the interests of the company from a commercial perspective and only if it is in the interests of the consumers from a political perspective. Further, control should not pass from consumers.

Vector needs to be careful. It is a big fish with interests in gas and telecommunications as well as electricity. But there are bigger fish who may take advantage of a public float.

Some say there should be no sale of any shares at all. That would not be in the interests of either consumers or the company - an unnecessary straitjacket on both.

The trust appears finely balanced about the attitudes it would bring to decisions such as these. No specific proposals have been formally considered, but it appears two trustees want to make Vector the biggest company in New Zealand. Three (including myself) are more conservative.

Recently I was offered the deputy chairmanship of Vector for the next three years by the trustees, provided I resigned from the trust.

When I asked for a person committed to conservative principles to be appointed in my place, the request was refused. That would have allowed the appointment of a privatiser. Because this would have changed the balance of the trust and enabled a privatisation agenda, I elected to remain with the trust and was then removed from the board.

I do not regret my decision. I stood for election to the trust on a platform of keeping control of Vector in public hands. I cannot walk away from that. I will continue to vote to keep control of Vector in public hands.

* John Collinge is a trustee of the Auckland Energy Consumer Trust. He is a former president of the Electrical Development Association, and a former chairman of the Auckland Electric Power Board.