Dunedin Electricity lines up further expansion in South

By Mark Reynolds

Dunedin Electricity plans to expand its power lines business in the lower South Island and perhaps further afield, following its $127.1 million purchase of Alexandra-based Central Electric's lines business last week..

The Dunedin-based company looks set to give Christchurch-based power lines company Orion some stern competition in the South Island, and also seems determined to stop Auckland-based United Networks establishing any significant beachhead in the South Island.

Ray Polson, chairman of Dunedin Electricity, said yesterday that his company was in talks with other neighbouring network operators.

"We believe we are a reasonably efficient operator and can put that efficiency to use in other lines businesses," Mr Polson told the BusinessHerald.

Dunedin Electricity wants to build up its line network to bring some economies of scale to its business. It is likely to expand through acquisitions from community trusts, who are beginning to realise that the power networks they own have become more risky assets following changes to energy regulations last year.

The regulatory changes forced power companies to choose between owning either a network or a retail business. The law changes also promise price control will be imposed on any inefficient lines operator.

Exactly how that inefficiency will be measured is still being finalised, but the threat of further regulatory pressure has already compelled some community trusts to sell out.

One such trust was Alexandra-based Central Electric, which sold its power lines to Dunedin Electric last week.

Mr Polson said there had been two other bidders for the Central business - understood to be Orion (formerly SouthPower) and United Networks (formerly Power New Zealand).

"From our point of view it was important to strengthen our network to show we are a competitive operator," Mr Polson said. "At the same time, I think there is an opportunity to work with other network owners who might be too small to operate efficiently in the new environment."

Dunedin Electric is owned by the Dunedin City Council. Mr Polson said the council would have to consider carefully both the opportunity and risk in continuing to own a network business.

The risk was highlighted yesterday by the Standard & Poor's rating agency, which put the council's debt on negative creditwatch because of the Central Electric purchase. The negative outlook was made on the basis that the Dunedin council would wholly debt-fund the purchase. That would more than double the council's gross debt.

The council was still deciding how to fund the purchase, Mr Polson said. It had funds available from the sale of other operations, including more than $80 million raised from its sale of the Waipori hydro power scheme earlier this year.

Dunedin Electricity runs a power transmission network for about 50,000 customers in the coastal Otago area, while Central Electric network serves about 15,000 connections including customers in Queenstown, Wanaka, Cromwell and Roxburgh.

Potential targets for Dunedin Electric include the 17,000-customer network of Electricity Invercargill and the 11,000-customer network of Waitaki Power.

Timaru-based Alpine Energy, with 26,000 connections, and Electricity Ashburton, with 12,000 connections, also appear too small to operate independently in the new environment.

Orion, by contrast has around 15,000 electricity connections as well as operating gas pipeline assets. United Networks has about 500,000 network connections, including operations in Auckland, Tauranga and Wellington.