Waimate ready for Alpine Energy dividend to drop

A potential two-thirds drop in Alpine Energy profit would whip more than $6.5 million out of the pockets of the South Canterbury lines company’s four shareholders.

The payout alarm bells have been ringing since a Commerce Commission ruling which ordered Alpine to reduce its revenue by more than 19 per cent for the coming financial year.

The lines company, owned by Timaru District Holdings Ltd (47.5 per cent), Line-Trust South Canterbury (40 per cent), and Waimate (7.54 per cent) and Mackenzie (4.96 per cent) district councils, paid out $9.9m to the four owners in 2019 split $4.7m, $3.9m, $747,871 and $491,968 respectively.

However, now, the Waimate council has expressed its concern, saying that the payout could potentially drop from 24 cents per share to as low as 8 or drop to a nil return.

‘‘The reduction of the AEL dividend from 24 cents per share to 8 cents per share is an income loss of $498,581 or 4.9 per cent in general rates,’’ the council said.

If the forecast were true, TDHL’s payout would be down $3.14m, LTSC down $2.64m and Mackenzie down $327,979.

The Waimate council said that since the early 1990s it has (as with other councils that have holdings in lines companies) applied the majority of the Alpine dividend to mitigate general rates.

‘‘For example, for the past five years an average AEL dividend of $625,476 has been applied to general rates per year.

‘‘In recent years, the WDC has held some concerns that the AEL dividend would fluctuate with the performance of the company, or any regulatory decision made that had a negative impact on the revenue that AEL is allowed to collect. Any loss of AEL dividend would need to be replaced by an increase in rates or a reduction in existing service levels for WDC.’’

The council says that, in recognition of the risk, it began to ‘‘roll-back’’ the reliance on the Alpine dividend as general rates income; with $100,000 ‘‘ringfenced’ from council’s Alpine’s equity investment dividend for council/community initiatives for the 2017/18 Annual Plan. The reliance has been rolled back by an additional $10,000 per year.

‘‘Due to WDC’s ‘roll-back’ of the dependence on the dividend the rates impact could be contained to 3.7 per cent on this basis,’’ the council says.

‘‘The loss of dividend comes as a significant issue when WDC is currently rating for accelerated drinking water and other essential infrastructure upgrades. The Long Term Plan 2018-28 forecast an overall rates increase of 6.7 per cent for the 2020/21 year.’’

Waimate mayor Craig Rowley said yesterday there is going to be an impact on rates as a result of a possible reduction in the amount of dividend received.

‘‘We are not sure what that reduction is going to be but we are anticipating that the reduction will be to about 8 cents a share, only a third of what we currently are getting which is 24c a share.

‘‘We were prepared, it is something that has been on my radar. Having dividends as rates remission can leave you open to winds of the market. There is no way to mitigate this sort of drop.

‘‘Stuart [Duncan, chief executive] and our accounting team are working to model all our options. We will be working to soften the impact of the reduced dividend. We believe the [Alpine] board will be making a decision on it sometime in the new year.

‘‘Once the numbers are confirmed management will bring the final recommendations to council,’’ Rowley said.

Timaru District mayor Nigel Bowen said the council – and the holdings company – will be doing its own modelling on the likely share price change following the Commerce Commission’s determination.

‘‘There’s a bit of water to go under the bridge yet. We’re still waiting for the commission’s final determination, but I imagine there won’t be much change from what’s proposed,’’ Bowen said.