Trustpower eyes structural separation into generation and retail businesses

Thursday, 28 January 2021

Trustpower’s chief executive describes the decision to “test the market” as opportunistic.

Trustpower is considering ‘structurally separating’ into a generation and a retail business by selling off its retail arm.

Chief executive David Prentice described the rationale for a split as opportunistic and said it was possible another ‘gentailer’ might be interested in acquiring Trustpower’s retail business.

But it was also possible there might be interest from private equity firms or overseas buyers, he said.

“We felt that with some of the opportunities that exist around capital markets at present, it is as good a time as any to test the market to see whether there is a potential acquirer out there,” Prentice said.

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“Coupled with that is our conviction that if New Zealand is to reach our climate change targets by 2050 we are going to need significant new generation to electrify the economy.”

Becoming a “pure-play” generator would let Trustpower focus its efforts and capital on that, he said.

Chairman Paul Ridley-Smith said the review was expected to take “a number of months”.

ElectricKiwi boss says review shows generators have the upper hand over retailers in power market.

A separation of the business could provide a welcome precedent for critics of the current electricity market who argue that state-controlled gentailers Meridian, Genesis and Mercury should be forced to choose between generating and retailing power, to increase competition in the wholesale market.

ElectricKiwi chief executive Luke Blincoe said there was “always hope” of that.

Trustpower’s review highlighted the fact “the money still sits in generation and wholesale”, he said.

“This is good proof retail is not much fun.”

He clarified he was making that comment in relation to businesses that were both wholesalers and retailers.

Prentice said there were many views on how the market should be structured but he believed the current market was not broken.

Trustpower, is majority owned by fellow NZX-listed company Infratil and sells electricity, gas, broadband and mobile phone plans, as well as generating power.

It is in a different position from the larger gentailers in that it is a net buyer of power on the wholesale market, selling a bit under twice as much power to customers as it generates.

Prentice said it was envisaged that the generation business would remain listed on the NZX as Trustpower if it did split.

The Tauranga-based firm employs just over 800 staff.

Prentice said about three-quarters of them were employed in the retail side of the business but that its generation arm contributed about three-quarters of Trustpower’s earnings.

“It would still be a very large business.”

The review would follow a “standard process” where potential bidders would be invited to express interest, he said.

“If the board wishes to pursue that interest with a small number of them, then it will open up a due diligence process, and if they receive a final binding offer they will consider whether to accept it or not.”

Prentice acknowledged the review would have an impact on staff and consumers.

“We are committed to being upfront and transparent right throughout the process,” he said.

Trustpower’s shares fell after the announcement but were down only 0.5 per cent at $8.72 in mid-afternoon trading, beating the NZX market index which was down 1.9 per cent.

The Tauranga Energy Consumer Trust is the second largest shareholder in Trustpower with about a 26 per cent stake in the business.

It said in a statement that if Trustpower did sell its retail arm that would require changes to its own structure, but did not indicate whether or not it was supportive of the proposal.