Aurora fund plan would come after sale

Photo: ODT files
Photo: ODT files
An investment plan for the Dunedin City Council arising from any sale of Aurora Energy could be months away from taking shape.

Details about the fund, such as whether it would be better held by the council or Dunedin City Holdings Ltd (DCHL), would likely be worked out after a sale.

"These decisions will be made once the exact size of the fund is known and tax advice has been provided," a report for councillors said.

If a sale of the electricity distribution company went ahead, the size of the fund was expected to be hundreds of millions of dollars, and uses of it "could include such things as paying down debt or offsetting rates".

Council staff anticipated specific details about the fund would be part of consultation on the council’s investment plan and this would be considered during the 2025-34 long-term plan (LTP) process.

Preparations for the nine-year LTP will occur later this year.

Aurora supplies power to more than 200,000 people across Dunedin, Central Otago, Wānaka and Queenstown.

The council has yet to decide whether it will approve a sale of the company, "because it first wants to hear and consider feedback from the public".

Councillors are set to approve a public engagement plan today.

The submissions period will run from March 28 until noon on May 2, and hearings will be held later in May.

If, after public feedback, it was determined Aurora should be sold, the council would then set a minimum price during the non-public part of a meeting.

DCHL, which owns Aurora on behalf of the council, recommended it be sold.

Divestment of Aurora would reduce council group debt by about $576 million and reduce risk to the council’s future credit ratings, debt covenants and borrowing costs, DCHL said.

It is expected Aurora debt would be cleared progressively.

Selling Aurora would avoid the need for council group debt to increase to fund the lines company’s future capital requirements, and an investment fund would provide a more consistent income stream to the council, DCHL said.

Aurora has in recent years embarked on a substantial spending programme to catch up on neglected maintenance and it has not generated dividends since 2017.

As things stand, debt for the council and its companies is on an upward trajectory.

Both the council and Aurora were labelled "capital intensive" in the council report.

The company has been on a customised five-year pricing plan with the Commerce Commission since 2021, when terms were established for how much could be clawed back from customers while the network was upgraded.

"However, even with that funding, it is expected that significant capital expenditure requirements will consume operating cash flows and require more debt," the council report said.

Aurora critic Richard Healey said he believed the company could sell for well above $1 billion, because it was a natural monopoly and had surety of income.

"It’s a government-guaranteed gold mine," he said.

Mr Healey highlighted commentary in the company’s annual report from last year, when a net profit of $11.1m was declared.

The pricing plan included a 10% limit on the annual increase in line-charge revenue in order to reduce the price impact on consumers.

When some revenue variances were added in, the total deferred revenue for the year to March last year was $39.3m.

It was $13.4m in 2022.

"This deferred revenue will be recovered from consumers in future financial years," the 2023 annual report said.

A Commerce Commission spokeswoman said the commission would not have a role in supervising any sale.

The commission was "generally indifferent to ownership — our regulations aim to ensure consumer interests are promoted regardless of ownership".

The sale price would not affect the way the commission valued Aurora’s assets or set allowable revenue.