Mr Tizard unhappy about M.E.D. funds

Press, 7 August 1985, Page 1

Mr Tizard unhappy about M.E.D. funds

Money raised from electricity consumers’ power bills was being used to prop up local authority activities, said the Minister of Energy, Mr Tizard, yesterday. He was expressing concern about the reported transfers of about $l3 million over nine years from the Christchurch City Council's electricity account to its general rate account. Mr Tizard said the Christchurch transfers were an example of what was happening in local authority financial activities throughout New Zealand. However, the Christchurch example was more serious because the Christchurch M.E.D. consumers and the Christchurch City ratepayers were not all the same people. “Waimairi, or other area consumers are subsidising the Christchurch City ratepayers,” Mr Tizard said.

Mr Tizard was quick to point out that the City Council was “far from being in default of its obligations under the existing law.” The size and scope of the problem of transfers from electrical accounts to nonenergy accounts had arisen from the agreement reached by the previous Government to allow territorial electrical supply authorities to transfer up to 1,5 per cent of their revenue

to non-energy activities. “The problem is now excessive, as millions of dollars are involved in an electrical authority the size of the Christchurch M.E.D.,” he said. An overhaul of the agreement was needed and he would pursue this with the president of the Electrical Supply Authorities’ Association, Mr Innes Kerr-Taylor. Mr Tizard made his comments yesterday after receiving a response from the Auditor-General, Mr Brian Tyler, to his inquiry about the regulations governing local authorities’ accounts in general and the Christchurch transfers in particular.

His inquiry was promoted by allegedly improper transfers referred to in articles in “The Press” by Dr Don Gilling, a senior lecturer in accounting at the University of Canterbury. Mr Tyler said there was a need for clarification of the 1979 Government guideline for transfers. One uncertainty under the present agreement was what constituted revenue, Mr Tizard said. The Christchurch City Council had interpreted revenue as referring to electricity sales only and not including such other sources of income as interest.

Mr Tizard said one area in which the present agreement lacked “important details of definition” was the transfer of interest generated from electricity revenue to other non-electri-cal activities. Millions of dollars could be involved. The agreement was originally worked out in 1979 to assist gas-manufac-turing undertakings run by electricity supply authorities, Mr Tizard said. Since then the interpretation of the agreement had become elastic and electricity revenue was now being used to support everything from loss-showing city buses to territorial local authority workshops. Expensive items of capital plant, especially cars and other transport, were being financed out of electricity accounts “particularly when these items are used very widely in the community on other territorial authority activities.” Mr Tizard said the charging of inflated electricity costs to consumers did not improve the South Island case for a continued or increased electricity differential. It was “iniquitous” that many South island consumers were being charged artificially high electricity prices at the same time as South Island interests were making a detailed submission to the Government for an increase to the 10 per cent South Island differential. Mr Tizard said the last Budget emphasised the importance of cost-related electricity tariffs, where public enterprise and local government was concerned. It aimed to ensure consumers did not pay more for their power than they had to. It was “not on” to allo-

cate cost burdens unfairly, or to increase burdens by building in extra allowances so that money could be generated for other purposes. Mr Tizard said it was particularly unfair where supply authorities used money when its boundaries did not coincide with the constituent local authority in that area. “This is the case in some of our major cities as well as a number of smaller territorial supply authorities,” he said. Mr Tyler called in his letter to Mr Tizard for a review of the local authority regulations that do not require local authorities to prepare and have audited separate accounts for their trading activities. The councils which prepared separate accounts for the M.E.D.s did so voluntarily, Mr Tyler said. To make the preparation of trading accounts mandatory would require an amendment to the Local Government Act, 1974. Mr Tyler said he intended to pursue this. The present regulations require only the bottom-line profit or loss figures to be published in over-all council accounts. At present 11 of 23 New Zealand local authorities with M.E.D.S do not audit electricity accounts “if indeed accounts are prepared at all.” - In the South Island, eight of 11 authorities with an M.E.D. do not prepare electricity accounts for audit. Those that do are Bluff Borough and the Nelson City and Timaru City councils. The Christchurch City Council last year passed a formal resolution no longer to have its M.E.D. accounts audited. The chairman of the City Council’s airport and electricity committee, Dr Morgan Fahey, said he could not say yesterday whether

moves would be made to rescind that resolution. Transfers from the M.E.D. account were not likely to happen again because the surplus in the account was being run down, he said. The Waimairi District chairman, Mrs Margaret Murray, and Dr Gilling both praised Mr Tizard yesterday for recognising the problem of local authorities’ accounts and for taking action. The Mayor of Christchurch, Sir Hamish Hay, said yesterday he agreed entirely with Mr Tizard that the 1979 “agreement” between the Government and the E.S.A.A. “lacked important details of definition.” The council would await with interest the result of the Minister’s proposed discussion with the president of the associatiqp, “The agreement was never commtihicated in writing by (he previous Minister to territorial local authorities concerned and the present situation is largely due to this lack of communication,” Sir Hamish said. He was pleased that Mr Tizard had noted that the City Council was “far from being in default of its obligations under the existing law” and that he had drawn attention to the fact that the council had gone beyond its legal obligations in previously publishing M.E.D. accounts. The Christchurch M.E.D. tariffs were not excessive, Sir Hamish said. They compared favourably with other North and South Island authorities’ charges, including those of the Auckland Electric Power Board. The rationalisation of M.E.D. tariffs earlier this year, including the coincidence demand tariff for industrial consumers, was in line with Ministry of Energy recommendations, Sir Hamish said.