28. 5. 97

SUPPLEMENTARY REPORT BY THE

CHAIRMAN OF THE STRATEGY AND RESOURCES COMMITTEE

13. SUBMISSIONS ON SOUTHPOWER'S

STATEMENT OF CORPORATE INTENT RR 5262

At its meeting on 19 May 1997 the Strategy and Resources Committee appointed a sub-committee comprising the Chairman and Councillors Howell and James to make recommendations to the Council on the issues raised in the submissions on Southpower's SCI.

As indicated in the Committee's report to the present meeting, the following organisations/individuals commented to the Committee on the draft SCI:

Mr Graham Tapper and Mrs Louise Moore-Kish, representing Greypower

Mr Ken Martin

Mr Alistair Price, Energy Management Solutions

Messrs Bill Hall and David Lynch, representing the Merivale Precinct Society

The principal points of concern to the submitters can be summarised as follows:

1. The late availability of the document and the inadequate time allowed for the preparation of submissions.

2. The impact on consumers of the requirement for Southpower to increase its surpluses.

3. The implications for the domestic market on major "spikes" in wholesale electricity prices on any unhedged electricity purchases by Southpower.

4. The method of appointing Directors. Directly elected rather than CCC appointed Directors were advocated by one submitter.

5. Disbursement of profits. It was submitted that Southpower dividends should be rebated to consumers or paid direct to ratepayers, as owners, so the ratepayers can decide how the dividends can be spent.

6. Cross subsidisation. It was suggested that Southpower was using its monopoly position in the domestic market to cross subsidise commercial contracts.

COMMENT ON SUBMISSIONS

1. Time Constraints

The points made by the submitters regarding the limited time allowed for making the submissions are justified. Two factors are responsible for this. Firstly, the legislative time frame for finalising the SCI and, secondly, the complex and time consuming negotiation process which precedes the release of the document. It is suggested that CCHL be asked to endeavour to accelerate this process with a view to completing the negotiations earlier. Failing this, earlier public notice should be given of the imminent availability of the SCI so that interested parties can be prepared.

2. Price Increases

In considering the submissions on this issue, the Committee noted that a comparison study of residential retail electricity charges of 10 major electricity retailers undertaken by Deloitte Touche and Tohmatsu showed that Southpower's charges compared most favourably with those of other major retailers, as evidenced by the following table:

Electricity Retailer	Region	Date of latest price change	Residential 6,000 kWh (incl GST)	Residential 9,000 kWh (incl GST)
Power New Zealand	Waitemata Valley Power	01/12/96 01/12/96	$933 $933	$1,271 $1,271
Mercury	Auckland	19/02/97	$872	$1,197
WEL	Hamilton	01/12/96	$881	$1,228
Transalta New Zealand Limited	Hutt Valley Wellington City	21/10/96 21/10/96	$850 $832	$1,204 $1,167
Mainpower	Nth Canterbury	01/05/96	$943	$1,256
Southpower	Christchurch	01/04/97	$771	$1,106
Electricity Ashburton	Ashburton	01/10/96	$755	$1,045
United Electricity (Timaru)	South Canterbury	01/10/96	$773	$1,037
United Electricity (Dunedin)	Dunedin	01/10/96	$843	$1,114
United Electricity (Southland)	Invercargill Southland	01/04/97 01/04/97	$849 $847	$1,123 $1,163

3. Hedging Arrangements

Given Southpower's detailed knowledge of the electricity business and the company's proven track record, it is the sub-committee's unanimous belief that the Council can have confidence in the Board's judgment in respect of these arrangements.

4. Appointment of Directors

The Energy Companies Act requires the Council to follow the corporate model in respect of the appointment of Directors. In the interests of long term commercial viability and efficiency the directors are selected with an appropriate mix of commercial and other skills to run this very large and important corporation which is operating in an increasingly competitive environment. There is no certainty that a Board elected by popular vote would have such skills.

5. Dividends

The sub-committee noted that the Council consults the ratepayers on how it should spend its revenue, including Southpower dividends, as part of the Annual Plan process.

6. Cross Subsidisation

Southpower is aware of the importance of ensuring that there is no cross subsidisation across consumer groups. It recognises that to remain competitive that cross subsidisation is not sustainable and has made significant effort to remove cross subsidisation over a period of several years. In addition there are several agencies, such as the Commerce Commission, whose role it is to ensure that pricing is fair and equitable.

Recommendation: 1. That in future years advance notice be given of the availability of the Southpower Statement of Corporate Intent for public comment.

2. That Christchurch City Holdings be requested to:

Note the concerns of the submitters about the effect of electricity prices on consumers.

Encourage Southpower to ensure it continues to maintain its competitive edge in terms of retail electricity charges.

3. That the Council continue to accept a moderate rate of return from Southpower to maintain moderate electricity charges.

4. That Southpower be requested to confirm earlier assurances that appropriate hedging arrangements are in place.

Chairman's

Recommendation: That the recommendations of the sub-committee be adopted.

CONSIDERED THIS 28TH DAY OF MAY 1997

MAYOR

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