Comment on the Directors’ 3 yearly Review of the Trust, 1999

South Canterbury Power Trust

Comment on the Directors’ 3 yearly Review of the Trust, 1999

The Trustees thank the directors of Alpine Energy Ltd for their report, provided in accordance with clause 4.1 of the Trust Deed.

The Trustees also wish to congratulate the directors on the performance of the company and its ranking by the Ministry of Commerce within the top performers out of all New Zealand’s line businesses. The consumers of South Canterbury can be satisfied that all involved in the company from the owner/shareholders to the staff on the ground have made Alpine Energy Ltd a strong, efficient and successful regional electricity distributor.

Trustee Role

The Trustees understand they have a very clearly defined role. Firstly, they are servants of the Trust Deed; secondly they must abide by the Trustee Act, 1956 and thirdly they are answerable to their electors, the electricity consumers connected to Alpine Energy Limited’s network.

The Deed of the South Canterbury Power Trust was designed during an acrimonious period of change in the electricity industry and therefore it contains little flexibility to accommodate changing times and changing public attitudes without undertaking an expensive and complex process to make changes to the Deed.

Achievements of the Trust

The Trust has championed local ownership since its settlement in July 1992. It has also consistently sought a “less than commercial” rate of return in the belief that there would be less need for higher line charges, to the benefit of the consumers. This has been reflected in a number of surveys of the electrical supply company line charges where Alpine Energy Ltd has featured very favourably. The Trustees also acknowledge some credit for this must be accorded to the Directors and staff for their efficiencies.

The Trust has also represented true community ownership. The district council owners, while also representing the community, have a more commercial mandate and therefore seek the highest optimal profit from the company they can, regardless of the impact on the line charges. It is only in this area that the Trust has had a difference in policy with the other shareholders.

Comments on the Directors’ Report

With reference to item 2.1, Strategic Ownership Issues, the Trustees wish to re-enforce the Directors’ comment in the second paragraph where they observe that South Canterbury has few companies with the financial strength and commitment to invest and therefore make a real economic difference to the region as a whole. The Trustees see Alpine Energy Ltd as such a company and we feel this should be recognised, utilised and retained in the region.

With reference to 2.2, Advantages of Continued Trust Ownership, the Trustees wish to highlight the Trust’s unique position as a shareholder in that the consumers directly elect the trustees. This is in comparison with the other shareholders, particularly Timaru District Holdings.

In reference to 2.3, The Disadvantages of Continued Trust Ownership, the Trustees acknowledge the average annual cost of the Trust’s operation, however, it wishes to balance this with the potential costs to the company should the 27,300 consumers hold the shares. This would include the servicing of the shareholders with interim reports, dividends, the annual report, the election or appointment of the three directors the Trust presently appoints and the costs of the annual meeting and extraordinary meetings.

In reference to 2.4, Options Arising from this Review, the Trustees acknowledge the options and the issues that need to be considered. In commenting on item 2. where the Directors refer to changing the termination provisions of the Deed, the Trustees have recently obtained three different legal opinions on the possibility of extending the term of the Trust using the provisions in Clause 14 of the deed . As a result of these opinions, the Trustees have concluded that using legal mechanisms to extend the term of the Trust is not an option. The only way to achieve a change would be by way of a Private/Members Bill.

Furthermore, the Trustees will need to consider the implications of the shareholders’ agreement and may need to renegotiate the agreement prior to any share distribution, whenever that may occur.

In reference to 3.0, Options for Company Development, the Trustees concur strongly with the Directors’ statement in paragraph 3 of item 3.1:

Electricity network growth is entirely demand driven and will not readily occur in South Canterbury. To create growth we need a vision of the future and of opportunities such as investment in water supply and irrigation as demonstrated by the Opuha Dam project.

The Trustees believe the South Canterbury community should now expect the company to embark on further investment in projects that will develop the region. While there must be a clear corporate separation from the network business, this is an area of investment that the company can embark on using both its financial strength and its asset management expertise.

If the Trust continues to hold its shareholding in the company for a further three years, it can strongly encourage the Directors to undertake such development.

In reference to 3.2, Line Business Growth, the Trustees expect the Directors to explore further economies of scale in their operation, provided the efficiencies of local focus are not lost.

Conclusion

As referred to above, the trustees are servants of their electors. The special consultative procedure as laid out in the Trust Deed in Schedule 2 will be followed by the Trustees.

After consideration of the consumers’ submissions, the Trustees will decide if they agree with the Directors’ conclusion and support a continuation of the South Canterbury Power Trust and its retention of all of its shareholding in Alpine Energy Limited.

The Trustees,
South Canterbury Power Trust
July, 1999