Electricity distribution businesses typically had a high ratio of debt to revenue and this could "have a drag on council credit quality and ability to borrow", advisers said yesterday.
This was one observation from infrastructure advisory firm Mafic Partners during a lengthy council workshop relating to a potential sale of Aurora.
It was also noted Aurora was one of the more highly leveraged businesses of its type in New Zealand.
Mafic Partners director Campbell Will said the council needing to support Aurora’s borrowing programme could make a credit downgrade more likely.
The council has an AA long-term grading from S&P Global Ratings, but the credit outlook was this year adjusted from stable to negative.
Aurora’s need for significant ongoing capital expenditure was a prominent theme through the day.
Others included regulatory protection for consumers, "deferred revenue" and discussion about why there was confidence a price premium could be achieved now.
The possibility of selling part of the network — such as Queenstown, Wanaka and Central Otago while retaining Dunedin — was mostly dismissed as impractical or likely to have less appeal to possible buyers.
The workshop was arranged after Dunedin City Holdings Ltd (DCHL) had sought an opportunity to respond to various themes from public feedback about the sale proposal.
Aurora is part of the council’s DCHL group of companies and DCHL favoured a sale.
If Aurora is sold, its debt would be cleared and a diversified investment fund would be set up for the council.
Public sentiment has been resoundingly negative for reasons that have included the perceived strategic value of the utility company and suspicion a new owner might under-invest or look to hike prices.
Sapere Research Group economist Toby Stevenson said there was no scope for Aurora to raise line charges beyond what was allowed by the Commerce Commission.
Companies also had quality and reliability standards to meet.
Mr Stevenson said Aurora had historically under-invested in its network and it then needed to catch up.
Aurora critic Richard Healey had talked at May’s public hearing about the company being massively profitable and regulatory environment amounting to "a licence to print money".
Mr Stevenson said electricity distribution businesses needed to recover costs efficiently.
"Don’t let anyone come in here and say that this is a licence to print money," he said.
"It’s not."
Mr Stevenson also sought to explain deferred revenue.
The commission capped how much revenue could be recovered from customers and if costs went beyond this the income had to be deferred, he said.
Cr Sophie Barker said people felt it looked like extra profit and Mr Stevenson said he was puzzled by this interpretation.
DCHL director Greg Anderson said Aurora was one of the group’s "legacy assets" weighted to growth and not income.
None could easily be converted into cash. Aurora was by far the largest asset.
Cr Kevin Gilbert was frustrated information presented tended to focus on the next decade when the council was faced with making a decision for the long term.
