1999 3 Year Review

SOUTH CANTERBURY POWER TRUST – 1999 THREE YEAR REVIEW

Contents:

• Introduction
• Review Requirements
• Director’s Conclusion
• Public Consultation
• Submission Hearing
• Individual Petitions
• Issues Raised in Favour of Distribution
• Issues Raised in Favour of Trust Continuance
• Consumer Communications
• Further References
• The Trustee’s Decision
• Acknowledgements

Introduction

As directed by the Trust Deed and in accordance with Clause 4, the trustees commenced the triennial review process by requesting a report from the directors of Alpine Energy Ltd in February 1999. The report was released to the trustees on the 23rd June 1999.

Review Requirements

The Trust Deed requires the trustees and directors to decide upon one of three options

(a). Retain the shares in the Trust; or
(b). Dispose of a portion of the shares including any resettlement of the shares on trust and retain the remainder of the Trust; or
(c). Dispose of all of the shares including resettlement of the shares on trust.

Director’s Conclusion

The conclusion of the director’s review was as follows:

That the directors of Alpine Energy recommend that the South Canterbury Power Trust continues with its current shareholding in Alpine Energy Limited, and continue to support the company’s initiatives to invest in projects and developments which bring profitable returns to the company and economic growth to the region.

In accordance with Clause 4.2 of the Deed, the trustees commented on the director’s report and then made both the report and their comments available for public submissions in accordance with Clause 13 and Schedule 2 of the Trust Deed.

Public Consultation

The relevant documents were made available to consumers in district council offices in Twizel, Fairlie and Waimate as well as at the secretary’s office in Timaru. The availability of the documents was advertised weekly in the local media. The submission period was open for 36 days and closed on the 31st of August 1999.

The trust’s internet web site also contained copies of the report and comments. Less than 30 copies of the papers were uplifted from the secretary’s office.

There were 1308 submissions received. This represented 4.8% of the consumers connected to Alpine Energy Limited’s network. There were 8 informal submissions where the submitter could not be identified and there were also a number of submissions tendered twice by the same consumer or several persons submitting from the same household.

It should be noted here that there was an organised effort to individually petition the trust, simply demanding the distribution of money. This action did raise the profile of the trust’s three-year review, however, those petitions were of limited assistance to the trustees. Because they were petitions rather than submissions, they contained little in the way of discussion to assist the trustees. None of the petitioners made a verbal submission to the trustees. Several of these petitioners indicated that they wished to make verbal submissions to the trustees, were given appointed times but then failed to appear or tender apologies.

The trustees received 43 ‘substantive’ submissions. There were 34 in favour of the trust retaining its shares and nine in favour of distribution. The trustees classed all submissions that contained a reasonable amount of written discussion on the submitters’ views as ‘substantive’.

Submission Hearing

On Thursday, 9th of September, the trustees, together with Alpine Energy Ltd director representative, Mr Ollie Turner, heard 12 verbal submissions from consumers. Eight persons spoke in favour of the trust retaining its share holding, three spoke in favour of distribution and one asked that the trustees provide more information. All consumers who requested to be heard by the trustees were given the opportunity to do so.

Individual Petitions

Of the 1308 submissions there were around 1220 individual petitions. The petitions called for money to be paid to consumers including “the additional $80 bonus announced by the company”.

Alpine Energy did not announce an $80 bonus. It announced a special dividend of $2.4m that the trustees have yet to decide on its allocation to the trust’s beneficiaries. This issue was not part of the review procedure.

These petitions indicated to the trustees that the author as well as those who signed them did not even attempt to research the review requirements. At no stage did the trustees indicate that they would be paying out money instead of shares, should the trust be wound up. The Trust Deed only addresses the distribution of shares.

The trustees are disappointed these people didn’t consider and discuss the merits of individual ownership of the shares verses the advantages or otherwise of the collective endeavour. From some of the remarks written on the petitions, there appeared to be a misunderstanding that if they hadn’t sent in a petition form, they would miss out on a distribution.

On balance, the trustees do acknowledge those who have petitioned the trust but have given their views less weighting than the views of those who took the time to provide a reasoned submission. The petitions were also weighted against the 11,000 petitions received by the company in favour of establishing the trust some six years before.

Issues Raised in Favour of Distribution

• Following are some of the points raised during the public consultation process and the trustee’s comments on those points:
• “That the Power Trust now has no say in the price that is paid for electricity”
• Comment: The trustees generally agree with this point. At the time of writing, the trust does still have an influential role in holding network charges. There are many other issues that the trust is involved in, however.
• “That the beneficiaries are quite capable of owning the shares themselves”.
• Comment: The trustees agree with this point. This is pivotal to this decision making process and must be balanced against the collective endeavour of the share ownership.
• “There is a ‘leakage’ of imputation funds because consumers are not claiming the credits in their tax returns”.
• Comment: This is out of the trustee’s control and could well occur even if the trust distributed and the company dividends were sent directly to individual share holders
• “The trust should be wound up because the district councils with their majority holding in Alpine Energy Ltd will look after the community’s interest and prevent large corporations or overseas interests from acquiring a controlling interest”.
• Comment: While the present district councillors may be of a resolve not to sell their council’s shareholding in Alpine Energy Ltd, future councillors may not necessarily have the same commitment. Furthermore, a future government may require local authorities to disburse all assets that are not their core business.
•  “I want that which is rightfully mine – my shares in Alpine Energy Ltd.”.
• Comment: Trust beneficiaries tend to be moving targets. It is mostly luck for those who happen to be connected to the network at the time the trustees resolve to either make a profit or share distribution. Intergeneration inequality is also a concern to the trustees as the assets were built and paid for by previous generations of consumers yet these consumers believe they have a right to the value of the assets, even if it denies future generations from enjoying a distribution.
• Issues Raised in Favour of Trust Continuance
• “Not only should the trust continue but a community trust should be formed to own the Power Trust’s shares in Alpine Energy Ltd.”
• “We believe that the Trust’s aim should be to reform as a community trust”.
• “I favour investigation into converting ownership to a community trust in co-operation with the other share holders”.
• Comment: Either the Power Trust beneficiaries would have to unanimously agree to their share entitlement being gifted to a community trust or there would need to be an act of parliament passed in order for this to happen. The trustees would only be prepared to seek either a member’s bill or a private bill if they thought they had the mandate from the consumers.
• “The trust should purchase the shares of the district councils and become a 100% share holder in Alpine Energy Ltd”.
• Comment: While it may be financially possible for the trust to borrow in order to purchase the shares of the other shareholders, there is still a problem with the short life of this trust or a successor trust. The trustees have taken legal advice and have concluded that the only way to lengthen the life of the trust is through an act of Parliament.
• “Distribution will create an intergenerational inequality”
• Comment: The trustees agree with this point. This aspect is not considered in the Trust Deed and will need to be addressed in the distribution plan, if and when a distribution occurs.
• “It would be premature to dismantle the Power Trust until there is some evidence that the (electricity) reforms are working in favour of the consumer”.
• “Time should be allowed to assess how the power reforms will eventually work”.
• “Allowing the electrical changes to settle, before making another one, will give more time to consider the best interests of all consumers”.
• Comment: The trustees see these submissions as a call for delaying a distribution rather than a call to retain the shares for as long as possible.
• “The trust maintains an effective balance of shareholding”.
• “The distribution of shares to the present consumers would inevitably lead to aggregation by a few large share holders”.
• “The shares should be held as a block and used to further advance commercial ventures”.
• “The privatisation and break up of the (electricity) industry is one of New Zealand’s greatest political blunders”.
• “The distribution network should remain community owned and in the meantime the trust has an important role to play in that ownership.”
• “It is not in the long term interests of the community to dispose of the shares for what will be some short term monetary gain.”

Comment: The trustees took note of these points of view.

The trustees also noted that submissions in favour of the trust retaining its shares were received from Timaru Grey Power that has a membership of 2000 people and from South Canterbury Federated Farmers with a current membership of 681 people.

Consumer Communications

It was drawn to the trustee’s attention that the trust had not provided sufficient publicity and information on both the role of the trust in South Canterbury as well as the purpose and procedure of the three-year review process. This issue was canvassed in a letter from another shareholder and it was also mentioned in more than one submission, such as:

· “I don’t believe the trust has provided any/enough information for me to make an informed decision”.

The Special Consultative Procedures as laid down in Schedule 2 of the Trust Deed does not require the trustees to undertake a comprehensive public information campaign as part of the triennial review. There seems to have been a high level of misunderstanding about the review and this was born out by the submissions received. Some people treated the process like an application process where they believed that if they didn’t apply for their “money” then they would miss out. Other submitters even enclosed electricity accounts as proof that they were a consumer.

The Special Consultative Procedure assumes that those trust beneficiaries who wish to provide input to the review process would do their own research by uplifting the documentation such as the director’s report and trustees comments from the trust’s secretary.

Many submitters were unaware of the restrictions the Deed places on the trustees. The Deed lays down very clearly the process the trustees must follow when doing a review.

A number of submitters and commentators suggested the trustees should have mailed every beneficiary with details of the review and others suggested the beneficiaries should have been polled on the options that are under consideration. While on one hand, the trustees were criticised for the cost of running the trust at an average of over $90,000 per year (the conducting of the trustee election consumes a significant proportion), the trustees were also conscious of the cost of a poll which could amount to between $2 and $3 per consumer or over $60,000 total. The trustees now recognise that such expenditure may well be necessary for a review.

Further References

In making their decision, the trustees also used other reference material as outlined below.

1. The trustees commissioned a report from McKinlay Douglas Ltd late 1998 with the intention of scoping future options for Alpine Energy Ltd and the trust’s role as a shareholder. This report proved to be a good background for this triennial review. The report can be viewed in full on the trust’s web site.j

2. Trustees have read Peter McKinlay’s recent book “Public Ownership and the Community”

3. In conjunction with Alpine Energy’s monthly consumer survey, the trustee’s surveyed consumers on trust matters. This report has been helpful to the trustees in their decision making process. It has been particularly useful when considering the requirements for further trust publicity.
This report’s executive summary is also published on the trust’s web site.

The Trustee’s Decision

After considering all the submissions and evidence placed before them and with due regard to the director’s report the trustees have resolved

“That the shares held in Alpine Energy Ltd continue to be held in trust in accordance with Clause 4.4(a) of the Trust Deed.”

In making the above decision, the trustees also make the following recommendations:

1. That the next review be commenced mid 2001 so there is adequate time for the process to take place before the present trust is required to terminate.

2. That the trustees, at that review, undertake a sizeable publicity campaign as to the role of the South Canterbury Power Trust in the community, highlighting the advantages and disadvantages of the trust. Many of these issues can be sourced from the submissions received at this review.

3. That the trustees then formally poll the trust’s beneficiaries to establish their opinion on the future of the trust.

The above recommendations are made in the knowledge that at the next review, the decision is not simply a matter of deciding to retain or distribute, but if retention is decided upon then the present trust must be wound up and a successor trust must be settled in accordance with Clause 4.11 of the present Trust Deed. It should also be noted that Clause 4.11(b) restricts a successor trust to a term of no longer than 15 years from the date of the settlement of the first trust or six years from the next three year review.

Acknowledgements

The trustees wish to thank the directors and CEO of Alpine Energy Ltd., all those consumers who took the time to write a submission to the trustees and especially those who made the effort to make verbal submissions to the trust.