OTAGO POWER BOARD

Otago Daily Times, Issue 22063, 20 September 1933, Page 5

OTAGO POWER BOARD

MONTHLY MEETING The monthly meeting of the Otago Power Board was held yesterday, and was attended by Messrs A. E. Russell (chairman), D. Boyd, J. K. Simpson, R. H. Michelle, G. Moore, and C. R. Smith. LIGHTING SEASIDE CRIBS. The Board decided that the original charge for supplying light to cribs at £2 5s per annum, made up of two quarters at 18s per quarter and two quarters at 4s 6d per quarter, with the option of the lighting being disconnected during the winter, be altered. _ It was decided that in future the minimum charge be £2 ss, the meters to be read yearly and the charge estimated on the different quarters, the amount to be computed at the first 40 units at 9d, the next 120 units at 4d, and anything further at 2d per unit. DISCOUNT ALLOWANCE. It was decided that in future an allowance of 2J per cent be made on all accounts paid to the meter reader when he calls at a consumer’s premises, the payment to be computed on the net amount. The chairman said that this was a suggestion brought forward by himself. He thought the discount would be appreciated by consumers. It would help the board to keep down its overdraft at the bank, and incidentally benefit consumers. It was decided to spend £37 in the meantime in increasing the size of the low tension lines in the Kaitangata Borough. A BRIGHTER OUTLOOK. Mr Moore moved the adoption of the board’s financial transactions for the month of August. Receipts from rates and sundry debtors amounted to £1469 10s 7d, and from electricity sales to £4786 9s 2d, .totalling £6255 19s 9d, as against £4167 17s 5d for last year. Expenditure for the same month totalled £1289 9s 6d as against £9787 4s 2d last year. The £9787 4s 2d last year included interest charges amounting to £8152 2s 6d, and this ' amount, less the statutory reduction, was paid after August 31 this year. The bank pass book shows a credit balance of £IO3O 6s 3d.

The accounts to be paid amounted to £10,093 17s 6d. The chairman said it would be gratifying to their ratepayers and consumers, and particylarly to board members, to know that they had reached a stage when the sun was beginning to break through the clouds. For the first time in the history of the board they had a credit balance, this amounting at the end of August to about £IOOO. For, the same period last year their overdraft at the bank was £14,000, and allowing for draft cheques for interest on debentures —£8152 —which this year was not paid in until September 2, they were at least £6OOO better off than at March 31 last year. In 1928 their overdraft was £9260, 1929 £26,029, 1930 £19,194, 1931 £17,131, 1932 £14,543, and in 1933 there was a credit of £IO4O. The speaker saw that the position gave them hope that the board would eventually be in the position to reduce the rates and the lighting charges carried by consumers during the past few years. The report was adopted. NOTICE OP MOTION. Mr Michelle gave notice to move that the agreement adopted regarding the duties of the engineer be reconsidered at the next meeting of the board. ENGINEER’S REPORT. The engineer (Mr R. D. Veitch) reported, inter alia, for the month of August:— Lawrence. —One new service has been run, and a supply and sub erected to supply a3O h.p. motor at Evans Flat. One 3 k.v.a. sub has been dismantled, and 263 yards of disused low tension have been dismantled in Lawrence and used for the Evan’s Flat extension. Owaka. —Twenty-five chains of lowtension have been dismantled and brought into stock. Stirling-Balclutha.—At Inch Clutha sixfoot arms have been fitted in place of 3ft 6in' arms at a section of the line where hawks have been troublesome,,dead hawks being found under the line. Extra danger plates have been fitted at Barnego. The south bank transformer substation at the Balclutha bridge has been increased in capacity to supply increased loading. Milton. —Faults 45,000 and 11,000-voit insulators have been removed from the main line. _ Line deviations to suit the reconstruction of the Milton-Taieri bridge road reconstruction are being made. One service has been erected. One car wash and water supply have been laid down in Milton yard and 60ft of drain laid in connection therewith. Northern Area.—At Shag Point, as a result of a fire, fallen wires have beenerected, and a temporary service given to the Shag Point Company. Alterations to a telegraph crossing at Goodwood have been made to cut out a bad corner and salvage" three poles and some material. At Waitati the 6600volt circuits have been tightened in places. The connected load is as follows: — Lighting, 1345.6 k.w.; heating, 4104.78 k.w.; cooking, 2255.61 k.w.; water heating, 337.6 k.w.; motors, 3299.73 k.w.; — total, 11,343.32 k.w. The report was adopted. .

LOAN CONVERSION. A COMPREHENSIVE REPORT. Mr Smith, presented a report on the question of the conversion of the .six loans of the board, which at March 31 last amounted to £291,500. This figure is exclusive of payments on account of sinking funds held by the public trustee as Sinking Fund Commissioner. * The accumulated sinking funds amount to £25,205 9s 6d, and deducting this amount from the £291,500, the net public debt is £266,294 0s 6d. Mr Smith reported:— Dealing with No. 6 Table Loan (Owaka Loan of £16,500) I find that this is repayable by 37 half yearly instalments of £705 6s 9d, and at March 31 last £2217 8s lid had been repaid. This leaves £14,283 11s Id still to be liquidated. This loan seems to be amply covered by part 1 of the Local Authorities Interest Reduction and Loans Conversion Act, 1933, which provides for a reduction of 20 per cent, in interest, providing such reduction does not bring the rate lower than 4J per cent. The rate on this loan is £5 10s, and a 20 per cent, reduction would bring the interest to £4 Bs. As this rate is but 3s above the basic rate of £4 ss, and the conversion of the loan would involve a premium of 15 per cent, and the unexpired period is but 14 years, it is questionable if much would be gained by converting. I, therefore, recommend that the board be satisfied with the 20 per cent, reduction of interest now in force. This leaves loans numbers one, two, three, four, and five to be converted. £ Loan No. I—Otagol—Otago Supplementary Loan No. 1 13,400 Loan No. 2 —Lawrence Loan .. 40,000 Loan No. 3—Otago Extension Loan 16 000 Loan No. 4 —Otago Loan .. .. 200,000 Loan No. s—Otagos—Otago Supplementary Loan No. 2 6,600 Total £275,000 I submit the following proposals for the consideration of the board: — That loans numbered one to five, totalling £275,000, be converted into one loan of that amount with a rate of interest at 4J per cent., and a sinking fund of 1 per cent., and a currency of 32 years. That premiums on conversion be paid from a loan of £20,000 raised January 31, 1934, and repaid March 31, 1940 from funds provided from sinking fund payments postponement. That conversion date be March 31, 1934. The net amount paid in inter- W the year ended March 31, 1933, was £15,402 8s sd. The amount payable for the year ending March 31, 1934, will be £13,732 14s Id. The board will be pleased to learn that as a result of our Government’s legislative enactions by debenture tax and conversion scheme our interest sayings on loans for year ending March, 1934, will be £3982, and in 1940, by which time the premiums on conversion will be repaid, our net annual saving in interest will be £4765. The computations show the premiums required, which amount to the arge sum of £19,916 3s 9d. The raising by debentures of this amount with a 1,2, or 3 per cent, sinking fund over a lengthened period, would be a heavy burden to add to the loan this board is already carrying. It can be done only ns a last resort. I stromrly recommend, as an alternative, the postponing of our annual sinking fund payments for a period of six years, and the ultilisation of those

amounts slightly increased from our general fund, at compound interest to provide these premiums. Such postponement presupposes the consent of the Public Trustee, the _ Secretary to the Treasury, and the Minister of Finance, and might also involve legislative action. While it can properly be affirmed that such a postponement of sinking fund payments would be a violation of the bondholders rights, it can also be properly affirmed that the bondholders security for their loan is not jeopardised inasmuch as full annual depreciation is already provided to maintain the electric system established, in a complete state of efficiency. It is just such an action as is taken daily by our mortgagor’s commission in adjusting the temporary financial difficulties of those appearing before them.

The report went on to show how the premiums could be provided by the suggested postponement of sinking fund payments over a period of six years, and stated:—

The computations are based on accumulated sinking funds, bearing interest at 4 per cent. It will be clear, therefore, that the present sinking funds are inadequate to repay loans at their respective maturity dates, and the problem resolves itself into finding a date when a loan will have a sinking fund sufficient to repay them in full, or leave such a sum as will present no great difficulty in liquidating. If these loans were converted into °b o loan of £275,000, maturing in 1966, with a 1 per cent, sinking fund, there would be available at that date for repayment purposes the sum of £269,830 2s Bd. Where the adoption of the basic rate results in a greater reduction than 20 per cent, in the rate of interest on existing securities, adjustment of the principal in the form of a premium on conversion requires to be made. This adjustment is necessary in all our loans. Provision is made in_ the Act to pay these premiums out of sinking funds, or issue debentures for same, but in view of the difficulty of obtaining the necessary amount out of our sinking funds from the public trustee, with whom idiey are lodged, the issuing of debentures or of some other expedient will be necessary, The chairman said he thought Mr Smith should be congratulated on ’the very exhaustive and clear nature of the report. The board should he grateful to Mr Smith for his work.

Mr Smith said that investigation had shown that they were going to get considerable relief as a result of the Government’s action in passing its Tax Debenture Act, and also in the last venture in their favour —that was the suggested conversion of all local body loans. Some 18 months ago they were paying £17,920 in interest, and this year, as a result of the debenture tax, they were only going to pay £15,402, Next year they would only pay £13,732, or in effect, they would have a saving of £4765 per year, and they could realise that this would be a great relief to the board and its consumers.— (“Hear, hear.”) When they considered that their average tax collection during the past three or four years had been in the vicinity of £IO,OOO, they would see that they were actually going to save half of that as a result of the Government’s action. There were certain matters, said the speaker, which would have to have the approval of the Government. The chairman said that the board’s position was not the same as that of the Southland Power Board. With considerable forethought their board had arranged that such a position did not arise when the Interest Reduction Act came into force.

Mr Smith: Interest payable in New Zealand. The chairman: Yes. . Mr Simpson moved, and Mr Michelle seconded—“ That the chairman and Mr Smith, when they are in Wellington at the time of the Power Boards’ Conference next week, pursue the question of the conversion of the board’s loan along the lines suggested in the report.” The motion was carried. Mr Smith moved, and Mr Boyd seconded —“That application be made to the Local Bodies Loans’ Board for permission to convert.” The motion was carried. The chairman said that if it could be arranged for the payments into the sinking funds to be deferred for six years, the board would adopt that procedure.