Mayor suggests examination of M.E.D. finances

Press, 5 July 1983, Page 9

Mayor suggests examination of M.E.D. finances

An independent financial consultant should perhaps examine Municipal Electricity Department finances, said the Mayor of Christchurch, Sir 'Hamish Hay, yesterday. Such a study could include the way power tariffs were fixed for various classes of consumer.

Sir Hamish said that the basis of funding for future M.E.D. capital works should be reviewed.

“I feel that present-day consumers are being required to bear too high a proportion of capital expenditure in their two-monthly power bills,” he said. There was a real possibility that power bills could be cut across the board if a future policy of financing about 25 per cent of capital works from loans were introduced.

“I have advocated for years that we ought to have somebody look at M.E.D. finances,” said Sir Hamish.

The Canterbury Manufacturers’ Association, for one, had “a long-standing grievance” about the tariff structure in Christchurch, especially compared with Auckland.

The M.E.D. had spent $7.5 million last year on capital works, of which 90 per cent was financed from revenue.

Over the last five years, $31.5 million had been invested in capital development, and only $3 million of that had been financed from loans.

Sir Hamish said the situation had been partly a result of some difficulties in raising loans at certain times, especially when such big projects as Queen Elizabeth II Park and the Town Hall were top spending priorities.

“I feel the M.E.D. has tended to take second place in the queue under this council in loan finance, possibly to the detriment of current consumers,” he said.

The M.E.D. had made a profit of ?7.1 million this year, and much of the capital works spending came from that income.

Many would argue that it was “prudent financing to do as much capital expenditure as possible from revenue, without having to raise loans at today’s high interest rates of 13.5 per cent,” said Sir Hamish. But “there comes a time when it can be unfair and unduly burdensome to pre-sent-day consumers to pay for capital improvements which will benefit future generations of consumers, especially when there is concern about the present relatively high levels of electricity tariffs to both domestic and industrial users,” he said. Government statistics showed convincingly that the M.E.D. in the 1981-82 financial year financed more of its capital works from revenue than any other New Zealand power

authority, including the Auckland Power Board. Many power authorities were financing between 25 and 50 per cent of their capital spending from loans. “Few, of course, were as fortunately placed as our M.E.D., which in that year earned a surplus of $5.7 million from its trading activities, and in the year following, a huge $7.1 million,” said Sir Hamish. During this financial year, the M.E.D.’s expected capital works programme would cost $8 million. Of that, only $250,000 would come from loans. That meant that amounts paid in electricity charges by domestic, commercial, and industrial consumers were being used to finance most of the M.E.D.’s programme of underground wiring ($3.7 million), buildings and property development ($1.3 million), installation of substation equipment ($2.9 million), and other capital works. “The M.E.D. has a very modest total loan indebtedness at $5.15 million in comparison with its total assets of $B7 million, at historical values,” said Sir Hamish. The next time the Christchurch City Council faced a power-price increase because of a rise in the Government’s bulk-electricity tariff, such review of consumer charges should be done on the basis of a study of M.E.D. finances, he said.