Power trust?

The Hawke’s Bay Power Consumers Trust … what’s that?

Most of us have no expectations whatsoever of the Trust, except the fervent hope that we’ll get a dollop of extra spending cash each year ($240 this year) … something to do with a benevolent dividend from Unison. Along with a smiling photo of the Trustees.

The notion that they might be more vigilant on our behalf or, alternatively, an unnecessary showpiece – or horrors, that $240 isn’t good enough – won’t occur to most people. Which is the way the Trust likes it.

So now we sit in the midst of an ‘ownership’ review of Unison – should we leave our shares (yes, yours and mine) in the hands of the Trust, where they now sit, or would alternative ownership arrangements better benefit both Unison and us, the ultimate beneficiaries.

The ownership review, despite the efforts of a variety of critics, is a pro forma exercise. Same options, same pros and cons. Yawn.

At each five-year review, Unison directors ask the same accounting firm as last time, PwC, to provide a fresh ‘independent’ assessment of Unison’s performance. The theory is that if Unison is performing OK (and they appear to be), there’s no need to mess with the status quo. Or to insist on more, as in build back better.

And Unison’s directors have little incentive to encourage any ownership structure that might place more intense scrutiny upon their stewardship of the company. Or as the directors put it in their report: “From the Company’s perspective, the Directors consider that what the Company needs as an owner of long-life intergenerational assets, alongside access to capital, is a stable shareholder (italics added) able to understand and support the intrinsic strategic value of the assets to the communities they serve.”

Unfortunately, that’s not an approach calculated to inform current shareholders of what the actual value of their (again, yours and mine) shares might be.

Indeed, astonishingly and arrogantly, Trust Chair Diana Kirton finds the entire question of what Unison shares might be worth as irrelevant … effectively none of the business of us shareholders. This despite the fact that knowledgeable insiders place that value in the $12,000 to $15,000 range, built upon an asset base of $990 million.

But since no one has been asked in the review to officially estimate that value, nor should they be asked to so long as Kirton reigns, the palace line is simply to dismiss these estimates as ungrounded and unrelated to the ownership issue.

That’s preposterous.

So, I’m making a submission to the official review and urge you to do so as well … but you only have until this coming Monday the 16^th. You can submit by email here.

I’ve read all the pertinent material – Unison’s Annual Report and Asset Plan, the Unison directors’ ownership report and the PwC report prepared for them. But after all that verbiage, I will boil my submission down to:

1. The Trust itself is a waste of money and offers no substantive value to Unison’s corporate leadership or to us ultimate shareholders.
2. The optimum ownership arrangement is one that ensures: a) Unison’s feet are kept to the fire as it seeks to deliver first-rate services and dependable sustainable shareholder value; and b) Unison is best able to meet its burgeoning capital investment requirements.
3. Whether or not the Trust so wishes, it is incumbent upon Unison’s corporate directors to explicitly and routinely examine alternative ownership structures that might potentially benefit the business. 

On the second point above, I’m told that even as Unison’s capital requirements reach and exceed $100 million per year, its access to such capital is not presently constricted. There is no present need to ‘unlock’ the full market value that exists, as was successfully done with Napier Port. The directors say that they can meet near-term needs by borrowing or selling unregulated assets.

PwC says: “…future growth in shareholder value may be constrained under the current ownership model. Unexpected changes to the regulatory settings or higher than anticipated demand for network or subsidiary investment are factors which could use up available borrowing headroom and create funding constraints.”

Yet already today, as I read Unison’s latest asset and risk management plan, clearly projects have been placed on the backburner that might have spared HB residents some of the power loss pain of the recent cyclone. Similarly, at what pace should investments be made to meet the region’s and nation’s electrification goals to address climate change, or to lessen rural residents’ dependence on the connected grid? Faster than Unison now contemplates?

For us beneficiaries, the Trust initiated no review of Unison’s preparedness for the cyclone disaster or report on lessons learnt. It merely issued a media release applauding Unison’s on-the-ground disaster response, which indeed deserved praise.

One might think these are matters that an ‘oversight’ body like the Power Trust might explore with insight and gusto. Perhaps Chair Kirton does so over cups of tea with Phil Hocquard, the Unison chair. Somehow, I doubt it. Maybe the Trust board members dive into these issues at their monthly meetings; unfortunately there are no publicly available meeting minutes to enlighten us.

It’s also been noted to me that Unison could always selloff one or another of its non-regulated businesses if it became capital needy. The public, which thinks of Unison as simply the ‘lines’ company (to your home or business), is largely ignorant of this part of the company’s portfolio … and the part that has open-ended profit potential, unlike the regulated lines business.

For those of you concerned about Unison shares being ‘sold out from under you’ if, for example, the company went into the market or took aboard a partner investor, bear in mind that Unison – the company, not the Trust – can already sell these assets (all but one 100% owned today) whenever and to whomever it wishes. For example, Unison Fibre appears to be up for sale.

Thankfully, as to my point #3 above, the Unison directors have taken a feeble step toward proactive fiduciary responsibility in their report to the Trust:

“The Directors are unanimous in concluding that Trust ownership remains the most appropriate form of ownership at this time but note that other forms of ownership may need to be considered if circumstances change significantly in time. In this regard, the Directors recommend that the Trust should confirm that it wishes the Directors to continue, over the next five-year period, to undertake further preliminary investigative work on sensible capital structure options required to meet any future material capital needs.”

I can imagine Chairman Hocquard on bended knee, anxiously awaiting Queen Kirton’s sword to tap his shoulder.

Given that the Trust is highly unlikely to vote itself out of existence, at the very least it should enthusiastically endorse this recommendation and ensure that it is undertaken with transparency. If the Port can drop its pants for a full-scale public review, so can Unison.

More on these issues from Free the Funds here.