Big price paid to retain local power control

By Mark Reynolds

Elected officials in Palmerston North are spending $45.8 million just to prevent control of their local power lines company falling into the hands of their counterparts in nearby New Plymouth.

The move could block the formation of a $400 million electricity lines company in the lower North Island that would have been able to reduce prices for consumers through economies of scale.

The Palmerston North City Council, along with the locally elected CentralPower Electricity Trust, has agreed to pay Infrastructure and Utilities (Infratil) $4.31 a share for a pivotal 16 per cent stake in CentralPower. The purchase sees off a rival offer for the stake by another lines company Powerco, which is controlled by local authorities in New Plymouth.

Palmerston North City mayor Jill White conceded yesterday that the move was made "to ensure that decisions on the future of CentralPower are made by Manawatu and not Taranaki interests."

The deal comes after Powerco last week increased its stake in CentralPower to 16 per cent by purchasing a 7 per cent holding from Alliant International of the US. Powerco subsequently put in a bid for the Infratil holding.

The price the Palmerston North groups have paid is way ahead of recent on-market sales of CentralPower shares at $3.30 each, and compares with Infratil's average cost of $2.10 each The sale price stunned Infratil, which was being forced to sell the shares to comply with new electricity laws.

The offer values all of CentralPower at nearly $290 million, or twice the value of the assets employed in its network of power lines and poles.

The council will have to borrow the money to fund the purchase, putting further pressure on ratepayers who are already facing a rate increase this year.

The Palmerston North authorities have not yet explained the price, although the purchase faces a public accountability process. Accounting firm PricewaterhouseCoopers negotiated the deal for the council, but did not return the Business Herald's call yesterday.

Trevor Malloch, chairman of the CentralPower Electricity Trust, said the purchase had been made because both the council and the trust were concerned by Powerco's move. "Powerco appears to be playing an aggressive win-lose game," he said, noting that Powerco had been trying to get CentralPower to agree to a merger.

Powerco chairman Barry Upson has suggested the benefits of a merger need to be formally assessed so that stakeholders in both Powerco and CentralPower can decide on the best future for their companies.