1. Your Statement of Corporate Intent
Karen Sherry October 2017

2. Your SCI has a new significance!
Until now many Trusts have seen their SCIs as corporate mission statements:
Dusted off annually, then put aside until next time.
A draft from the company that may be tweaked a bit, then formally endorsed.
Occasionally used as a reference point for discussion with the company but respecting the arms-length relationship between trust and board/management.

3. Auditor-General on SCIs:
“Statements of corporate intent only rarely provided on websites” “…it was difficult to tell if a statement of corporate intent served any additional accountability or strategic purpose other than as a compliance document.” [In SCIs] “…shareholders should focus on some key content…including setting entity objectives and suitable performance targets”

4. The legislation is changing
There are two primary legislative drivers behind SCIs:
The Energy Companies Act 1992 – not materially changed; and
The (pending) Trusts Act 2017 – replacing the Trustees Act 1956.
The latter has profound implications for trust governance, and for SCIs.

5. Other new pressures, too
The various allegations and recommendations from the IEA’s country review of New Zealand need to be considered, even where we might strongly disagree.
The Auditor-General’s June 2017 report on EDB governance also deserves attention.

6. New governance requirements
Assuming that the Trusts Bill emerges from select committee without much change, SCIs should recognise (amongst other things) trustees’
“general powers to do all that is necessary to manage the trust property and to carry out the trust, including all the powers of an absolute owner of the property”;
and
“power to invest trust property in any property (and matters that the trustee may consider in exercising the power to invest).”

7. The “Power to invest” requires trustees to be made aware of a long list of trust and company governance matters specified in the Bill:

8. (a) the objectives of the trust or the permitted purpose of the trust:
(b) the desirability of diversifying trust investments:
(c) the nature of existing trust investments and other trust property:
(d) the need to maintain the real value of the capital or income of the trust:
(e) the risk of capital loss or depreciation:
(f) the potential for capital appreciation:
(g) the likely income return:
(h) the length of the term of the proposed investment:
(i) the probable duration of the trust:
(j) the marketability of the proposed investment during, and on the expiry of, the term of the proposed investment:
(k) the aggregate value of the trust property:
(l) the effect of the proposed investment in relation to the tax liability of the trust:
(m) the likelihood of inflation affecting the value of the proposed investment or other trust property:
(n) the trustee’s overall investment strategy.

9. Therefore, your board must assure you:
(a) that you will be provided with the information necessary to exercise those powers effectively;
and
(b) that the company will take the operational steps necessary to give trustees confidence that they can exercise those powers effectively
(As an example, that the directors have adequately insured the trust’s assets).

10. Some of the key “power to invest” requirements
(b) the desirability of diversifying trust investments (e) the risk of capital loss or depreciation (g) the likely income return (j) the marketability of the proposed investment during, and on the expiry of, the term of the proposed investment

11. View all of these requirements in terms of the two primary ones:
“(a) the objectives of the trust or the permitted purpose of the trust” and “(n) the trustees’ overall investment strategy” [Note that trustees are required to have an overall investment strategy!]

12. Example: the desirability of diversifying trust investments
This is a very topical requirement, in terms both of the IEA’s report and the Auditor-General’s paper. It seems clear that your trustees’ investment strategy should cover it clearly!
You might refer to the risks of asset stranding, and the convergence of technologies.
Look first at your trust’s objectives or purpose!

13. Do you have a purpose statement or a defined trust objective?
This should be spelled out in your SCI ahead of the company’s group objective.
Put specific trust objectives ahead of aspirational themes that are more applicable to your EDB, e.g.
‘To maintain and invest in Trust assets to best promote the interests of our community/consumers;’ and
‘To deliver informed, active and responsible governance, recognising the requirements of trust law and other formal responsibilities.’

14. Trustees’ investment strategy
While this will necessarily be fairly general (it shouldn’t hobble directors’ ability to develop sound proposals) it should guide trustees in reviewing those proposals. It might usefully be included in the SCI, linked to the trust’s objectives. It should cover trustees’ attitude to investment risk, to requirements for funds, etc. See e.g.

15. Other things to consider in an SCI
Any pricing and/or service quality expectations that the Trust may require that are over and above those that may be required by regulation.
The Trust’s health and safety expectations for the company and its services.
If appropriate, the information needed by the Trust to comply with income distribution requirements.
Where an acquisition or significant contractual or business undertaking is proposed, a business plan (ensuring that any related party details are included)

16. Company reporting to the trust
This is a central theme in the legislation, and must be spelled out in the SCI. It needs to cover, amongst other things:
The age and condition of the company’s assets;
Key planning assumptions that the company uses in maintaining network resilience;
Planning to accommodate technological change;
Risk management strategies and risk exposures, including risks of regulatory breaches.

17. Collaboration
This is a theme that’s central to the wider Conference discussions. Collaboration has a place in your SCI, which could include an expectation that the company accepts that it has a role in the wider EDB community in areas such as price reform, R&D, health and safety best practice, etc. A possible clause:

18. …Collaboration clause?
“The company will seek to collaborate with the wider lines industry in seeking to improve consumer, community and workplace outcomes through developments such as: Tariff reform; Technological uptake, including joint projects relating to long-term technology scenarios and responses; Disaster recovery strategies; Health and safety procedures.”

19. Summing up!

20. The New Trusts Bill vs the Energy Companies Act
The Act requires each EDB to draft an SCI to be delivered to its trust within 1 month of the start of each financial year. It gives the company just 2 objectives: to operate as a successful business, and to “have regard…to…ensuring the efficient use of energy”.
Section 39 of the Act spells out requirements for the SCI.
The ‘Trusts Act 2017’ when passed will add additional matters that have emerged from court decisions, and empowers trustees to do much more with their SCIs!

21. Next steps
One of the Friday workshops will focus on the SCIs, and your views would be appreciated.
Subject to the outcome of today, and the workshop, ETNZ could provide a model SCI, bearing in mind:
the extra weight that a collective approach would give to the SCI process, and
The need to jointly address the new trust responsibilities that will come with the new Trusts Act.