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Trust Watch

In 2009 I stood as an independent candidate in the Auckland Energy Consumer Trust election.  All  electricity consumers were eligible  to vote for the 5 trustees but only 16.5% exercised this right (down from 19% in the 2007 election). Unfortunately this means the 5 trustees are all from C&R and do not represent the diverse communities of Auckland. I posted my reaction to the election here. I will continue my interest in the activities of the Trust.

Role of the Trustees

In my campaigning,  it was clear that the Trust, if it is known at it all it is for the annual dividend payment ($320 was paid on 18 September 2009). Like most companies, Vector is expected to make returns to its shareholders by paying them a dividend. By keeping Vector in public ownership you will continue to receive a dividend which I support.

One of the trustees’ main duties is to distribute income earned to income beneficiaries and to maintain or enhance the value of the trust fund. The latter duty obviously relates to the underlying value of Vector, which derives from things like its strategic direction.     This is where the trustees and the directors who are trustees can make a real difference. To the extent that Vector makes a profit that is not wholly returned to shareholders, how should that reinvestment of that retained money (your money) occur? What assets should be acquired to enhance the future value of Vector?   Should they be invested in wind-farms or other forms of renewable energy?   What is the right balance between ensuring that electricity prices are fair, and making a profit for shareholders (who are predominantly the users of the electricity)?

I suspect that some of the dis-interest in voting in the AECT election stems from poor communication about the role of the trustees, and why it should be considered important.  In practice, the trustees:

1      Set and distribute the dividend to the Trust’s beneficiaries

2      Propose and, with other shareholders, appoint Vector’s board of directors. There are currently seven members on the board, with an option to increase that number to nine.

3      Approve all major transactions undertaken by Vector

4      Manage the Trust’s funds

5      Communicate with beneficiaries and the general public on the Trust’s activities

6      Monitor and address regulatory issues affecting Vector, the Trust and AECT beneficiaries

7      Get involved in energy matters in the interests of Vector, our consumers and beneficiaries

8      Take a proactive role in ensuring security of supply for our customers

9      Monitor prices of Vector Electricity services in the Trust district and ensure these do not exceed the agreed pricing policy

As you can see – the trustees play a very real role in the strategic direction of Vector, which in turn has a direct impact on its value (and subsequently the dividend yield).

The dividend

As electricity consumers we really like getting this money ($320 in 2009 in 2015 it is now $345) and it is great for raising the profile of the Trust. We receive the dividend because of the public ownership of the Trust’s key asset Vector.  However the AECT could be doing more to put some of the dividend directly into the community or projects that will encourage energy efficiencies and savings. This is what other trusts do around New Zealand.

Citizens & Ratepayers have used the election to suggest (bribe?) to voters that they are responsible for paying the dividend. In fact it is the AECT that pays the dividend directly to all power bill holders in the old Auckland Electricity Power Board area.

Candidates in the election have an unsurprisingly simple strategy for re-election.  They promise to pay you a greater dividend every year (and carefully ensure that the dividend is only paid just prior to the elections in the relevant year – perhaps to remind voters how well the incumbents have done).    And I understand the importance of this dividend cheque to many households (its important in mine, too).  Of course, it helps to remember that ultimately the money comprising the AECT dividend comes, in part, from your electricity consumption and the price you pay for that supply.  What is more important – cheaper electricity prices or bigger dividend yields?  Which should win out in the decisions asked to be made by the trustees?

Ownership of Vector

The Trust’s key asset is a 75.1% shareholding in Vector Limited. Originally when the Trust was first established in 1993 it owned 100% of Vector but a part privatisation of Vector took place after the 2003 election by trustees who had promised to keep Vector public!

By keeping Vector in public ownership you will continue to receive a dividend.

Vector’s performance

Vector has an obligation to its shareholders to operate effectively and cost efficiently but not to the extent where there is under investment and a lack of maintenance.  Rather than looking to unsustainable year on year growth in the dividend Vector’s priority must be getting the job right in the first place – delivering what customers want – a safe, secure, reliable and cost effective energy supply.

Electricity pricing

The consumers who receive the dividend are paying too much for their energy bills. It is estimated that a quarter of Kiwi housesholds suffer “energy poverty”.  The lines charge that consumers pay Vector is only one component of a household’s electricity bill so it is not  just Vector’s pricing that is causing energy poverty. However, Vector is part of the electricity industry that prices using variable charging (based on kilowatt hours) that does not encourage efficiencies and keeps prices inflated.  For example, it would be far more sustainable for electricity charges to be based on capacity (also called fixed charging) and for smart meters to be introduced into every home with a range of tariff options to encourage efficient energy use. Vector and the AECT need to be part of the solution to ensure the dividend is not being spent on unaffordable power bills.

The strategic direction of Vector

It is vital that the Trust supports Vector’s success and effective management of Auckland’s energy infrastructure.

But however economically successful Vector is today, the strategic direction of the company must be positioned to respond to environmental challenges such as climate change and resource depletion.

“Business as usual’ in today’s world is not an option as we transition to a low carbon economy and toward more benign methods of energy production, distribution and use.

Undergrounding

Vector holds on to some of its profit to reinvest in the business and to pay for the undergrounding of power lines.    The Trust has an agreement with Vector that commits it to spend over $10m a year replacing power lines and power poles with underground cables. All AECT trustees were instrumental in bringing about the undergrounding programme, and this is a good example of why you should vote in the upcoming elections, and vote well.  So far, more than 124km of power lines have disappeared underground, and I think that’s great however the Trust needs to speed  up the project because it adds value to the network and  at current rates it is likely to take 40 years to complete.

Trustee remuneration

Annual fees for the chair of the Auckland Energy Consumer Trust have increased 300% over a 5 year period to 2007/08. The current chair enjoys fees of $91,000 up from $30,000 in 2003.  Fees for other Trustees range from $63,000 to $139,000 for a Trustee who is also on the Vector board.

The Trust needs to attract people with the skills and experience to make decisions in the interests of over 300,000 beneficiaries.  A payment to the trustees is reasonable for their time and commitment however it is a part time role on a community trust.  The trustees must be willing to serve on the Trust and in recognition of this service accept a level of fees which will not be considered by the community to be excessive or greedy.

AECT website