TECT consultation on structure changes; rebate protected

Trustpower announced on 28 January 2021, that it is undertaking a strategic review of its retail business, that includes a potential sale.

We wrote to all beneficiaries and valued stakeholders of TECT, to let them know that Trustpower’s decision means that TECT has to change.

Trustees have released a proposal that outlines the changes to TECT’s structure needed to meet the purpose of the Trust Deed, and to ensure that the best interests of the Trust and its beneficiaries are protected. This proposal protects the rebate for existing TECT beneficiaries for approximately 30 years.

You can learn more about the proposal in the video below.

The detailed Notice of Proposal was emailed to all beneficiaries and you can find all additional information below.

All TECT beneficiaries were entitled to make a submission on the proposal. Beneficiaries who wished to comment on the proposal were invited to make a submission in writing by 4:00pm, Monday 22 March 2021. Submissions are now closed.

Hearing of TECT Consumer Submissions

TECT heard submissions on proposed changes to the structure of TECT following a consultation period that was undertaken between 18 February and 22 March 2021.

Approximately 700 written submissions were received by the closing date of Monday 22 March 2021.

Submitters who requested an opportunity to speak to their submissions were invited to speak at a hearing of oral submissions held on Thursday 25th March 2021.

All TECT beneficiaries were invited to attend the hearing, but beneficiaries only had speaking rights if they requested to do so as part of their submission.

   

TECT Proposal Document Library

Consumer Information Sessions

Trustees held a series of information sessions to outline the proposal and answer any questions on Wednesday 3, Thursday 4, and Sunday 7 March. View the presentations below.

Media Releases

TECT Media Releases

TECT to proceed with changes to Trust structure, following consultation (Thursday 22nd April, 2021) - VIEW HERE

Consultation on TECT Proposal closes today (Monday 22nd March, 2021) - VIEW HERE

One week left to have your say about proposed changes to TECT (Monday 15th March, 2021) - VIEW HERE

TECT consultation reaches half-way point (Monday 8th March, 2021) - VIEW HERE

TECT to consult on structure changes; rebate protected (Thursday 18th February, 2021) - VIEW HERE

TECT assessing impact of Trustpower strategic review (Thursday 28th January, 2021) - VIEW HERE

Trustpower Media Releases

Update on Trustpower strategic review (Wednesday 28th April, 2021) - VIEW HERE

Trustpower strategic review of retail business (Thursday 28th January 2021) - VIEW HERE

FAQs

Click on a question below to view the answer.

1. Why is TECT proposing this change?

Trustpower’s decision to conduct a strategic review and potentially sell its Retail Business means that TECT must also review and change its structure and the way it operates.

Under the TECT Trust Deed, the sale of Trustpower’s Retail Business to a third party means that TECT’s beneficiaries will no longer be Trustpower’s local retail customers. This means they would no longer be entitled to receive a rebate. Instead, the beneficiaries will be only a small number of larger commercial and industrial electricity users in the Tauranga and Western Bay of Plenty region who will remain customers of the Trustpower Generation business if the Retail Business is sold.

This means that TECT will not be able fulfil its purpose, which is to benefit the broad base of electricity customers of Trustpower in Tauranga and the Western Bay region. 

In practice, this means that Trustees will not be able to distribute rebates to retail customers and the Trust will effectively be frozen. The direct TECT rebate to retail customers will stop.  

Given the Trustpower strategic review and the potential retail business sale process, the Trustees are required to act now to review the structure of TECT in order to meet their obligations under the TECT Trust Deed.

2. What changes are being proposed?

The steps for change include:

Step 1:
TECT (renamed as TECT Consumer Trust) retains sufficient funds to pay a yearly rebate of $500 to all existing beneficiaries (as of Thursday 28 January 2021). The amount and structure of that retention has been developed using independent customer information from Trustpower to determine an appropriate churn assumption, and financial modelling support from KPMG. The range is in the order of $291 million to $413 million. The Trustees have yet to finalise the retention, but intend to focus towards the high end of the range.

Beneficiaries must remain a customer of Trustpower or a buyer, in the region - if you leave, the rebates stop with limited exceptions. New customers and the current customers of the new business do not become beneficiaries.

In about 30 years’ time the TECT Consumer Trust must be wound up.  

Any remaining funds in the TECT Consumer Trust at this point are transferred to the new TECT Community Trust.

Step 2: 
The balance of TECT’s funds are transferred to a new long-term community trust focused on grants for local community projects.

3. Why is this any different to the change proposed in 2018 that failed?

The strategic review and potential sale by Trustpower of its Retail Business means that TECT must also review its structure - we have no choice.

4. Why do I lose my rebate if I change electricity supplier?

The Trustees consider that allowing you to keep receiving your rebate if you moved to another electricity supplier would be inconsistent with the purposes of TECT. At the outset, Trustees decided to keep the structure of the rebate consistent with the current scheme to protect the entitlements of current beneficiaries and ensure fairness for both current beneficiaries and future generations.

5. What happens if Trustpower does not sell its Retail Business?

Even if a sale does not proceed at this time, there are compelling reasons for proceeding with the proposed restructure. The strategic review has identified the ongoing risk of a change in Trustpower’s ownership. Under its Trust Deed and given the recent trust law changes, TECT has nearly 100 years to run. When TECT was established in the early 1990s none of this was foreseen. The Trustees are clearly of the view that TECT needs to change in order to protect the rebate for existing beneficiaries.

In addition, the proposed new structure will also resolve several important issues with the existing structure that have developed in recent years and pose ongoing risks to TECT. The Trustees therefore wish to proceed with a restructure of TECT irrespective of whether Trustpower is ultimately successful in selling the Retail Business at this time.

6. Does TECT agree with the decision by Trustpower to carry out a strategic review and consider a potential sale of its Retail Business?

That’s a commercial decision for the Trustpower board.  TECT’s Trustees duty is to assess what that decision means for TECT and its beneficiaries and take appropriate action, which we are doing. 

7. The Trustees didn’t stand on a change mandate so why make them now?

Trustpower has announced a strategic review of its Retail Business, and a possible outcome of that review is that Trustpower will sell its Retail Business.

If such a sale occurs, TECT will no longer be able to be administered in a way that is consistent with its terms and objectives, and in a practical sense its purposes will have been frustrated. 

As such the Trustees need to review TECT’s structure with a view to preserving and protecting those objectives. With no change to TECT’s structure, current consumers who transfer to a buyer of Trustpower’s Retail assets, if such a sale occurs, would get no future rebates.

In addition, over time a range of other structural issues have also emerged that reinforce the need for change.

8. Why not wind up the Trust and transfer the existing assets back to beneficiaries?

Trustees considered all options, including winding up the Trust. However, doing this would be inconsistent with the purpose for which the Trust was established and therefore very unlikely to be approved by the High Court. 

Trustees do have broad powers to make distributions.  However, there is a legal requirement that these powers need to be interpreted in accordance with the objectives for which the Trust was established.  What this means in practice is that before the trustees can simply wind up of the Trust and make a payment, they need to be clear that what they are doing is consistent with the Trust’s purpose.

The TECT Trust was established to benefit the broad base of electricity customers of Trustpower in Tauranga and the Western Bay region.  It was set up as a long-term trust to benefit those customers and their community over time.  This means that in all decisions they make the Trustees need to balance the rights of current beneficiaries and future generations, to ensure fairness to all.  
 
As such, winding up the Trust and distributing the capital to current beneficiaries is simply not something the Trustees can properly do and would likely be rejected by the High Court.  This is because there are better options available – options which are more consistent with the purpose of the trust.  The current proposal has been selected by the Trustees as the best option because it balances the desires of current customers to continue to receive their rebates, takes into account the broader community concerns and in effect continues the current structure on for another generation. 

9. Why did TECT undertake a consultation before agreeing the final proposal?

The TECT Trust Deed’s Consumer Consultative Procedure requires that the Trustees implement the following:

  1. Place notice of the proposal before a meeting of the Trustees;
  2. Give notice of the proposal to Consumers in accordance with clause 11 of the TECT Trust Deed;
  3. In every notice given under paragraph (b), specify a period within which Consumers interested in the proposal may make submissions on the proposal to the Trustees;
  4. Ensure that any Consumer who makes written submissions on the proposal within the period specified in the notice given under paragraph (b) is given a reasonable opportunity to be heard by the Trustees;
  5. Ensure that every meeting at which submissions are heard are open to Consumers; and
  6. Make all written submissions on the proposal available to Consumers.

TECT undertook a month-long consultation with beneficiaries between 18 February and 22 March 2021.

791 written submissions were received and submitters who requested an opportunity to speak at a hearing of oral submissions held on Thursday 25 March 2021. Approximately two-thirds of submissions received were supportive of the changes in the proposal and its focus on protecting the rebate. All submissions are available to view here.

10. Why don’t beneficiaries get to vote on the proposed changes to TECT?

Trustees have been advised that they cannot delegate their decision-making responsibility to beneficiaries. The process requires a consumer consultation, a Trustee decision on the final proposal, and then Trustees must take an application to the High Court.

11. Why does the proposal need to go to the High Court?

Courts in New Zealand have legislative and inherent jurisdiction in respect of Trusts, including TECT.  Where a decision that the Trustees need to make is particularly significant in its potential impact on the Trust, the Trust’s beneficiaries and/or its assets, the Trustees can apply to the High Court for approval of their proposed course of action.

The Trustees believe that an application to the High Court for endorsement of the approved proposal is appropriate to ensure that the proposed course of action is consistent with the TECT Trust Deed, in the best interests of Consumers and for a proper purpose.

Trustees announced on 22 April 2021 their decision to proceed with the changes to the structure of the Trust. They will now make an application to the High Court for directions confirming the validity of the Trustees’ decision. The restructure will only take effect if the High Court makes those directions.

As part of the Court process, the Trustees will ask that an independent QC be appointed to assist the Court in scrutinising whether Trustees are exercising their powers in an appropriate way.

Once this application has been filed, TECT will send a notice to all beneficiaries outlining the next steps in the Court process. All beneficiaries will have the right to participate in the High Court process and have their views heard, including by formally opposing the application should they wish to do so.  Beneficiaries wishing to participate in the High Court process are encouraged to seek legal advice.

12. If the proposal proceeds, what input would Consumers have around the types of community initiatives that get funded each year?

It is intended that the future type of community consultation / engagement undertaken by the new TECT Consumer Trust would be similar to the process that is currently undertaken.

This includes a commitment to continue with:

  • An annual meeting / annual reporting.
  • Consultation on the Annual Distribution Plan.
  • Grants functions that publicise grant recipients.
  • Regular communications (e.g., e-news, website); and
  • Consultation with community on significant decisions / grants.

13. What groups or initiatives will be funded through the community grants?

As is the case now it is intended that distributions to community groups and organisations will be guided by an Annual Distribution Plan. This will include a commitment to engage with the community to design and confirm the policies that inform the Trustees’ decision making. This will be ongoing and reflect the needs in the community at any point in time.

14. How much money will be available to community organisations?

It is intended that distributions to community groups and organisations will be made by the new TECT Community Trust and will continue to be guided by an Annual Distribution Plan. However, the actual amount of funding available to charitable and community groups and initiatives will likely increase more than threefold over time. This will have a transformative impact on the Tauranga and the Western Bay of Plenty community sector.

15. Why must Consumers stay with the company that buys Trustpower’s business, to get rebates?

In answering this the origins of TECT and Trustpower are important.  On establishment of TECT in 1993, all electricity consumers in the District were “Consumers” because until then the only supplier was the Tauranga Electric Power Board.  Over time, the number of energy consumers in the District who are customers of Trustpower has diminished to around 59%.  But the link with Trustpower, as the successor to the Tauranga Electric Power Board, has always been there.  TECT’s trust deed makes this clear – TECT was set up to hold shares in Trustpower, receive dividends from that company and pay rebates and other community benefits out of those dividends. 

So, in considering the restructuring options available, the Trustees sought to choose the option most consistent with the existing TECT trust deed.  The preferred option retains the link back to the Tauranga Electric Power Board and Trustpower as originally established.  A buyer of Trustpower’s retail business will hold the assets that were central to the original trust structure.

An option which saw TECT paying rebates to customers of any company would be quite different from the existing TECT trust deed, and the arrangement which has existed for almost 30 years.  It would give those Consumers an advantage which no prior Consumers ever had.  That would be inconsistent with the context and objectives of the Trust. For those reasons, the Trustees see the currently preferred option as having a stronger legal foundation than allowing Consumers to obtain the rebate regardless of their supplier.


    16. I don’t want to wait 30 years to get my full pay out, why can’t I just get my share of TECT paid out to me now?

    As a TECT beneficiary you don’t own ‘shares’ in TECT that you can cash out, transfer to others or sell. Rather as a local Trustpower customer you’re entitled to receive the TECT rebate when/if one is paid out.   As such you do not have the ability to demand that TECT pays out your ‘share’ to you now rather than proceeding with the proposed changes. 

    Future Rebate FAQs

    We are currently in the process of considering the future of TECT rebates, which you can read more about above.

    1. Who would be eligible to receive the TECT rebate?

    To be eligible to receive a TECT rebate, beneficiaries must meet the following criteria: 

    a. Initial Eligibility

    • Were a Trustpower power customer in TECT's District on 28th January 2021 (the Record Date).
    • The number of eligible connections (ICP’s) per customer will be recorded on this Record Date.

    b. Ongoing Eligibility

    • Subsequent to the sale of Trustpower’s retail business, the customer:
      • Remains a power customer of the buyer of Trustpower’s Retail business, with an account in the TECT District
      • Remains a power customer of Trustpower’s Generation business (Commercial & Industrial customer) with an account in the TECT District
      • Returns to the buyer of Trustpower’s Retail business as a power customer after a break of no more than three consecutive eligibility periods
      • Is no longer deemed a beneficiary if they are ineligible for three rebates in a row
      • Can have up to five additional ICPs (in the TECT District) over and above the number of ICPs at record date
    • To receive TECT distributions, beneficiaries must meet the following criteria:
      • Have an active power account with the buyer of Trustpower’s Retail business in the same name on:
        • 01 October and continuously through to 31 March for the July rebate
        • 1 April and continuously through to 30 September for the December rebate
    • If a beneficiary provides a final reading for their account on 31 March or 30 September, they are paying the line charges for that day, so are therefore a customer on that day, and are entitled to a rebate.

    Note 1: Parts of Waihi Beach are excluded from the TECT district. 104 Seaforth Rd - Waihi Beach is excluded. 106 Seaforth Rd - Bowentown is included in TECT's district.

    2. How much would the rebate be?

    The annual rebate would be $500 per ICP for each Eligible Consumer, irrespective of size or type of consumer. The number of ICP’s will be capped at the number recorded against the Eligible Consumer on the Record Date (28th January 2021) plus up to an additional five ICP’s within the TECT District which also meet the eligibility criteria.

    The rebate amount will increase to $600 in 2030 and $700 in 2040, to reflect inflation.

    3. When would the rebate be paid?

    The rebate would be paid in two instalments, in July and December, i.e. $250 every six months. 

     *same as current policy

    4. How would the rebate be paid?

    The rebate could be paid directly into eligible beneficiaries' nominated bank accounts. If preferred, beneficiaries could have their rebate credited to their power account. This would be the default payment method if no bank details are provided. 

     *same as current policy

    5.Would people outside Tauranga/Western Bay receive a rebate?

    No, only customers of Trustpower or the buyer of Trustpower’s Retail business living in the TECT District would be eligible to receive the rebate. 

     *same as current policy

    6.Would current customers of the buyer of Trustpower’s Retail business be eligible for the rebate?

    No.

    7. Would new customers of Trustpower or the buyer of Trustpower’s Retail business be eligible for the rebate?

    Future customers of Trustpower or such a buyer are not Eligible Consumers, and would not receive the rebate.

    8. What would happen if I move house during the qualifying periods (1 October – 31 March and 1 April – 30 September). Would I still receive a TECT rebate?

    If you missed a rebate eligibility, you could come back in and be included in the next one. However, if you missed 3 consecutive rebates (essentially an 18-month grace period), you would become ineligible for future rebates.

    *current policy allows for a 30-day grace period only

    9.If we changed our account name during one of the qualifying periods (1 October - 31 March for the July rebate, and 1 April – 30 September for the December rebate) – would we still get a rebate?

    If you changed the name on your power account during one of the qualifying periods you would not be eligible for that qualifying period’s rebate.  Some exceptions would apply.

     *same as current policy

    10.The account is in our landlord’s/body corporate name but we pay the bill. Would we receive the rebate?

    The rebate would be paid to the person or organisation named on the Trustpower or buyer of the Trustpower Retail business account. This person(s) would be liable to pay the bill and would therefore be entitled to receive the rebate.

     *same as current policy

     

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