Submission into the Ministerial Inquiry into the Electricity Industry

South Canterbury Power Trust

SUBMISSION TO THE MINISTERIAL INQUIRY INTO THE ELECTRICITY INDUSTRY, 2000

The South Canterbury Power Trust holds 40% of the shares in Alpine Energy Ltd, the owner of the electrical network in South Canterbury. The Power Trust favours regional control of South Canterbury’s resources.

Electricity Retailer Treatment of Network Charges.

SUBMISSION

The South Canterbury Power Trust asks that the government prohibit the electricity retail companies from marking up network charges by any more than a small administration fee.

The Power Trust has had a consistent policy of requiring a modest rate of return from Alpine Energy Ltd, based upon the theory that the line charges to the consumers (the Trust's beneficiaries) would be charged at a modest level. The Electricity Reform Act has severely compromised this philosophy.
The dividend rate the company was returning to its shareholders was 7.3% on their assets. This dividend target has recently been increased to 8.5%. The company has made further efficiencies including redundancies and has increased line charges by an average of 10.6% in order to create this enhanced return.
As a shareholder, the Power Trust has reluctantly agreed to the increased return because the electricity reform act has enabled retailers to capture the difference between low network charges that small, efficient, community owned network companies charge and average national network charges.
This submitter strongly objects to the present legislation that allows electricity retailers to add a mark-up to the network charges. The trustees find this intolerable, as considerable effort has been taken by both the trustees and our company directors in keeping the network charges as low as possible for the benefit of our region.
We submit that it is unacceptable that electricity retailers are free to increase their prices, particularly the network component of their pricing, at a greater rate than the network has increased its charges.

Network Charge Transparency

SUBMISSION

The South Canterbury Power Trust asks this inquiry to ensure electricity retail companies maintain transparency of their charges on consumer’s electricity accounts.

This submitter is also very concerned that the electricity retailers are beginning to publish only one tariff, effectively hiding the variable network charge and the price of the energy component in one charge. From the 1^st of April, 2000, Contact Energy appears to be charging its domestic customers a combined energy and variable line charge. This compromises transparency.
It could be argued that with competition in electricity retailing, the retailers need the flexibility to differentiate their pricing and to be able to mix the various components of their costs for marketing purposes. This submitter prefers transparency rather than “creative illusions”.
For analysis and evidence of retailer mark-ups and charging regimes refer to the data appended to this submission.

Electricity Generation Restrictions

SUBMISSION

The South Canterbury Power Trust submits that this inquiry recommend that network businesses again be allowed to own and operate electricity generation without restriction.

Small regional electricity network companies such as Alpine Energy Ltd have traditionally played important roles developing the use of their region’s water resources. This is now severely compromised by the previous government’s electricity reform legislation.
The development of a region’s water resource for in-stream and primary production enhancement is frequently uneconomic without the ability to earn revenue from the generation of electricity.
The present structure of large and often multinational generating companies do not have the same regional commitment as locally owned network companies to develop small but important regional water resources.
Network companies, with their engineering expertise and their traditionally high equity, are the natural business to be involved in the development of such schemes.

The Trustees believe that if the generation ownership restrictions are revoked, the ownership changes that have been taking place over the past two years are unlikely to be reversed, however network companies would once again be able to play an important role in regional development.

Electricity Trusts

SUBMISSION

The South Canterbury Power Trust asks that this inquiry investigate enabling electricity trusts to amend or change their trust deeds so that trusts can better serve their communities according to present day expectations.

Most electricity trusts were formed as a result of the Energy Companies Act, 1992. In many instances the trust deeds were written in an acrimonious environment.
Electricity consumer trusts have beneficiaries that are difficult to define and are of dynamic nature, depending on who is a network customer at any one point in time. Furthermore it is becoming more and more difficult for trustees to continue their contact with their beneficiaries as a result of the reorganised electrical retailing.
It is rapidly becoming apparent that the shares of regional electricity network companies may be better held by community trusts rather than consumer trusts. This would enable trusts to add value to their communities.
The South Canterbury Power Trust was formed as a short-term consumer trust. This is not necessarily the present day requirement of the South Canterbury community.
The trust deed and present legislation does not allow the community to either lengthen the term of the trust nor does it enable it to be converted to a community trust.
The submitter feels it is not the only electricity trust in New Zealand that may wish to alter or reform its trust deed in order to better accommodate its community’s present day wishes.

Verbal Submissions

The South Canterbury Power Trust does not wish to make a verbal presentation of the above submissions.

Supporting Data

	CONTACT ENERGY
	TARIFF ANALYSIS

	Alpine's New Charges (Effective 1/02/2000)		Contact's New Charges (Effective 1/04/2000)
	Fixed	Variable	Fixed	Variable + Energy	Variable	Energy
All day Tariff	0.69	4.47	0.87	11.24	4.32	6.92
Night Rate	0.69	0.30	0.87	7.06	0.67	6.39
				This is the new advertised tariff	The above split of variable and energy tariffs are calculated upon the assumption there has been no increase in the energy component

	Alpine's Original Charges		Contact's Original Charges
	fixed	Variable	Fixed	Variable	Energy
All day Tariff	0.62	4.04	0.78	3.85	6.92
Night Rate	0.62	0.27	0.78	0.28	6.39


	Alpine's increase in variable rate - day			10.64%
	Alpine's increase in variable rate - night			11.11%
	Alpine's increase in fixed rate			11.29%

	Contact's increase in variable day rate			12.21%
	Contact's increase in variable night rate			139.29%
	Contact's increase in fixed rate			11.54%

	Contact's mark-up - fixed charge			26.09%
	Contact's mark-up - variable day			-3.36%
	Contact's mark-up - variable night			123.33%

All charges include GST

Contact

The South Canterbury Power Trust may be contacted through the secretary, Mr Tom Simpson, McFarlane, Hornsey, Simpson, P O Box 540, Timaru. Telephone 64 3 688 9082, Fax 64 3 684 5071. Other information including a copy of the Trust Deed may be found on the internet at http://powertrust.11net.com/