Vector urges regulatory change due to low-interest-rates

Vector urges regulatory change in low-interest-rate environment

By Victoria Young

Sept. 23 (BusinessDesk) - Directors at lines company Vector are pleading for regulatory changes, claiming the low-interest-rate environment is presenting new challenges.

Vector won’t give forecasts for next year or issue a dividend until the Commerce Commission gives guidance on pricing, which is expected late November.

The regulator’s draft decision on default price paths in May will see Vector’s 2021 allowable revenue fall by 3 percent from the current year.

Chair Alison Paterson told some 100 shareholders at its annual meeting Vector continued to express concerns over record-low interest and inflation rates.

“Here at Vector, we strongly believe that regulatory settings should not restrict our ability to deliver Auckland growth or invest in technology to future-proof our network for the people of Auckland,” she said in her address.

“We think the case to align regulatory settings with the investment needs of today has never been stronger.”

Specifically, the company wants a move to the non-indexing of assets to deliver more cashflow and for the regulator to change the way it works out the cost of debt in its weighted average cost of capital calculations.

Falling interest rates are reducing Vector’s cost of capital, with the commission’s decision assuming a weighted average cost of capital for the sector of 5.13 percent from the 7.19 percent used for the current five-year regulatory period.

Up for election, director Paula Rebstock, said she wants to improve communication with the regulator, which she said had never been more important.

“Frankly, regulators do not know how to deal with this environment.

“We need to be heard. The regulatory regime has been there for a decade and hasn’t changed. We are a frontrunner, and we need a regime that benefits frontrunners for the investments that they make."

Rebstock is one of three new directors who were appointed in April - the others are Tony Carter and Bruce Turner. The trio came in after turmoil with Vector’s largest shareholder Entrust, saw the consumer electricity trust withdraw support for several directors.

At today’s meeting, Vector’s board was questioned about a $46.6 million impairment for its 2017 acquisition E-Co Products, which trades as HRV. Disappointment with the purchase was the subject of most of shareholder questions at the meeting, with one labelling it “horrible.” The impairment hit Vector’s bottom line which fell 44 percent, to $84 million in the 12 months ended June 30.

Paterson said she expects the unit to return to profitability next year but, “with the benefit of hindsight, we should have integrated it more quickly.”

Customers’ needs around heating solutions had shifted, and new leadership and a strategic review was needed, she added.

Group chief executive Simon Mackenzie said new government healthy home requirements insisting living rooms in rental properties to be capable of being heated to 18 degrees would increase demand for heat pumps.

In relation to its core business, Mackenzie said Vector’s primary challenge is the time it takes to restore power following an outage, highlighting problems with Auckland’s traffic congestion.

Somewhat ironically the lights temporarily went out at Eden Park during the meeting’s question and answer session. Power was promptly restored.

Vector shares fell 4 cents to $3.56 today and are up just over 4 percent from a year ago compared with the benchmark S&P/NZX 50 Index's more than 15 percent gain over the same period.

(BusinessDesk)

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