TECT to consult 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.

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

Submissions can be made online here, or via post with all submissions addressed to TECT, PO Box 637, 7th Avenue, Tauranga 3144.

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

Consumer Information Sessions

The Trustees are also holding a series of information sessions to outline the proposal and answer any questions:

   

TECT Proposal Document Library

Media Releases

TECT Media Releases

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

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?

This would be inconsistent with the purposes for which TECT was established and therefore unlikely to be approved by the High Court.

Trustees need to balance the rights of current beneficiaries and future generations, to provide in effect intergenerational benefits.

9. Why is TECT consulting 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.

The Trustees are now implementing this procedure, and this Consumer Information Memorandum is a part of that process.

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.

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.

For 2021 rebate FAQs, click here.

 

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