TECT – Unexplained

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Opinion piece TECT

Opinion: In a previous article I concluded by saying, “TECT needs to explain to its consumers why, or if it is prudent for its consumers, to continue to hold shares in TrustPower, whether its consumers are getting fair value from TrustPower, and why TECT should continue to exist”. TECT has not responded, so I have decided to investigate myself.

The Players Are:

Trust Power: its shareholders profit through often tax-free appreciation of the value of their shares when sold, and from dividends, a share of the Trust Power’s annual profits paid out to shareholders.

TECT: it holds 27% of the shares in Trust Power and income derived from these shares is used to provide benefits to those who buy their power from Trust Power (approximately 56,000) who reside in the Tauranga City and the Western Bay of Plenty district. 78% is paid directly to TECT consumers, and the remainder is paid to a number of community organisations selected by TECT Trustees.

Infratil: it holds a controlling 51% of the shares in TrustPower

How the Market Works

The electricity market was de-regulated by Government many years ago with the goal of bringing competition to the retail sale of electricity by power distribution companies, who in turn buy that power from power generation companies.

The electricity is transported from the generating companies to local sub stations by Transpower, a state-owned enterprise, and from there to the consumer by a local lines company such as PowerCo. Irrespective of where the consumer is located, he or she can purchase electricity from most any of the electricity retailers who appear to compete vigorously for market share.

TECT Cheques

Only consumers who live in Tauranga City or Western Bay of Plenty, who purchase their electricity from Trust Power receive an annual cheque from TECT which represents their share of TrustPower profits received by TECT. 22% of these profits are paid to local charities identified by TECT Trustees, the remaining profits are distributed each year to these consumers in a cheque, referred to as ‘the TECT cheque’, prior to Christmas each year.

Market Knowledge

In a complex and changing market Consumer NZ has created an online tool to allow consumers to compare the cost of their electricity requirements from the full range of providers.

This tool can be seen at www.powerswitch.org.nz PowerSwitch requires your address, asks a number of questions about your insulation, methods of heating, number of people in the home, whether it is occupied during the day, and details of your previous power accounts.

From this information PowerSwitch advises what your power would cost each year, from each of the different providers.

My Own Situation

I live with my wife in an insulated house with two heat pumps and a Kent fire for heating. Our current provider is Mercury Energy.

My PowerSwitch report from Consumer NZ has informed me that if I switched to Electric Kiwi as my provider I would save $560 per annum. But if I switched to TrustPower and signed a 3-year contract, my annual power cost would increase by $915 per annum. In my situation, buying power from Trust Power on a 3 year contract would cost us $1,475 more than purchasing the same electricity from ElectricKiwi.

Is purchasing power from TrustPower to get a TECT cheque the same as the Chrisco Christmas Hamper Club?

Pricing Differential Outside BOP

I then entered addresses in other centres in the PowerSwitch tool and discovered that Trust Power electricity rates appear to be higher in Tauranga City and Western Bay of Plenty than anywhere else in New Zealand. In Tauranga, TrustPower charge 25.36c per unit, however in Auckland TrustPower charge just 19.99c per unit, a power cost saving of 21% for Aucklanders who are not eligible for the TECT cheque. It is also cheaper in Hamilton and Wellington.

Does Trust Power think that BOP electricity consumers will continue to pay this additional cost just to get their TECT cheque?

Infratil

If TrustPower is making greater profits from Tauranga consumers who are paying a higher unit price for their electricity in order to receive a rebate or profit distribution through the TECT cheque, it should be noted that TECT cheques arise from just TECT’s 28% shareholding.

Where does the other 78% of this additional profit get paid out? Bay Waka passed this opinion piece to TECT for comment before publishing, and TECT expressed no concern about these comments and did not wish to make any further comment at the time.

By Peter McArthur

“I write for Bay Waka to help explain the fine print.”