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Current as of 01/10/14 07:40PM NZST

Grant Bradley

Aviation, tourism and energy writer for the Business Herald

Vector hits out at retailers

Power companies are failing to pass on reductions in line charges, says CEO

Vector CEO Simon MacKenzie says the goal of regulation is to encourage efficiencies. Photo / Paul Estcourt
Vector CEO Simon MacKenzie says the goal of regulation is to encourage efficiencies. Photo / Paul Estcourt

Vector has taken a swipe at electricity retailers for not passing on cuts in line charges this year.

The Auckland infrastructure services company was ordered by the Commerce Commission to cut electricity line charges by 9 per cent from April, amounting to about $60 a year for residential customers.

At the release of its annual result yesterday Vector chief executive Simon Mackenzie said the goal of regulation was to incentivise efficiencies in its business and it was expected the gains would flow through to customers.

"Unfortunately customers' wallets are yet to benefit from these initiatives as regulation intended."

Vector would not name the power companies but Ministry of Business, Innovation and Employment figures show that only Contact Energy and Empower dropped charges in the month after the new line charges.

Vector lifted net profit 2.3 per cent to $203.3 million in the year to June 30 in spite of a dip in underlying revenue from its electricity distribution arm, which is facing flat or falling demand as consumers buy more energy-efficient appliances and lighting and conserve power by switching off the lights.

While electricity revenue rose 3.9 per cent from $609 million to $632.9 million, earnings before interest, tax, depreciation and amortisation (ebitda) fell 3 per cent from $384.1 million to $372.5 million because of increased Transpower charges and regulated price falls.

Mackenzie said the company's new technology businesses that are not regulated were boosting revenue "in the face of a new economic norm of patchy growth, reduced energy consumption and a challenging environment for value-enhancing acquisitions".

He said a warm winter had also contributed to a 1 per cent fall in electricity volumes throughout Vector's network.

"We expect to see connection growth in Auckland but on a per user basis we expect to see flat to reducing volumes, consistent with international trends."

Vector also faces commission-imposed price reductions for gas transmission and distribution networks of 29 per cent and 18 per cent respectively which will come into force from October 1.

The volume of gas carried in the year to June 30 also fell, again mainly due to warmer weather and reduced demand from gas-fired power stations.

The technology unit includes electricity and gas metering installations and data management services and was the company's best performer, reporting a 13 per cent gain in sales to $109.1 million and a 13 per cent lift in earnings to $76.3 million as Vector installed more smart meters.

"We are contracted to install over 764,000 meters across New Zealand, allowing for customers moving between retailers, up from 670,000 a year earlier."

Mackenzie said the company was investigating rolling out the service in Australia.

Vector was also doing work with photovoltaic cells combined with battery storage.

"They offer consumers real opportunities to reduce energy consumption and help us to more efficiently manage the network."

The company expects 2014 earnings and revenue to meet market estimates of ebitda of $575.3 million, down from $630 million this year.

"There's a mixture of things going on there but obviously regulatory cuts coming through on the gas and electricity prices are the key factor in the lower result next year," said Forsyth Barr analyst Andrew Harvey-Green.

He said new connections in subdivisions and inflation-linked increases in regulated prices provided revenue growth potential for Vector.

The firm's shares closed up 1c yesterday at $2.65, down from a 12-month high of $2.95 in April.

Dividend gets 3.4 per cent boost

Vector's total dividend has been bumped up by 3.4 per cent.

The company declared a final dividend of 7.75c a share - with a September 6 record date and payable on September 13 - taking the annual return to 15c.

It aims to pay dividends of up to 60 per cent of operating cash flow less the total of spending on maintenance or ongoing replacement capital expenditure.

This year the percentage is 49 per cent which Forsyth Barr analyst Andrew Harvey-Green said was in line with the company's conservative approach over the past few years.

"At the end of the day it was a fairly sensible move, the regulatory price set has been a threat for a period of time. We're at a point where that is going to start to bite."

Most of the dividend is paid to beneficiaries of the Auckland Energy Consumer Trust which owns 75 per cent of Vector on behalf of more than 300,000 consumers in Auckland, Manukau and the northern parts of Papakura.

The trust will meet at the end of next month to determine this year's figure.

- NZ Herald

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