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Propbd on Q F8Apr16 – Vector Gas sale OK, Auckland Airport refinances

Vector Gas sale approved
Auckland Airport refinances

Vector Gas sale approved

The Overseas Investment Office has approved Australian investor First State Funds’ application to buy Vector Gas Ltd for $952.5 million, Vector Gas owns & operates NZX-listed Vector Ltd’s gas transmission & non-Auckland gas distribution businesses. Shareholders approved the sale in December. The transaction is expected to be completed on 20 April.

Vector expected to repay its $540 million of drawn bank debt immediately on settlement.

The Auckland Energy Consumer Trust owns 75.4% of Vector. First State Funds comprises the Global Diversified Infrastructure Fund and Colonial First State Active Infrastructure Income Fund, both managed by First State Investments, a global infrastructure asset manager with $7 billion of equity invested in infrastructure assets in Australia, New Zealand & Europe.

Link: Vector sale document

Auckland Airport refinances

Auckland International Airport Ltd said yesterday it had refinanced maturing bank facilities and established a new one.

The company established the 2 new standby bank facilities totalling $200 million to refinance $80 million & $35 million undrawn facilities which were set to mature on 30 April. The 2 new undrawn standby facilities are provided by BNZ ($125 million) & Westpac ($75 million) and will mature in April 2019.

Auckland Airport has also established an additional 2-year drawn facility of $100 million with Commonwealth Bank of Australia to partly fund its capital expenditure programme.

Attribution: Company releases.

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Commission threatens to take control at Vectra, and company responds point by point

Published 10 August 2006


The Commerce Commission said yesterday it would have to take control of Vector Ltd’s electricity distribution services because of the company’s charging policies. But by the end of the day Vector had responded point by point, making the commission’s action look more like a debatable agenda than a clearcut regulatory necessity.



Commission chairman Paula Rebstock said the commission had published its intention to declare control of Vectra’s electricity distribution services after finding Vector “is overcharging industrial & commercial customers across its networks. Vector is also undercharging some residential customers, particularly the Auckland residential consumers who are the beneficiaries of Auckland Energy Consumer Trust, Vector’s principal shareholder. By being undercharged, beneficiaries of the trust are receiving an implicit dividend in addition to the normal shareholder dividend.


“The commission considers that the disparity between customer classes is inefficient and can not be justified. The commission also found that Vector is earning excessive revenues overall.”


Ms Rebstock said it was the commission’s view that:

Vector is overcharging some customers and undercharging others: The company is making different rates of return from its 21 different customer classes and these differences can not be justified. For example, during the 2006-07 year, Vector will earn a 54.4% rate of return on investment from one group of Northern business customers, while it earns only a 4.6% rate of return from Auckland residential customers
Vector is earning excess revenues: The commission’s preliminary estimate is that, during the next 2 years, Vector will earn between $13-75 million in excess revenue/year. To bring its returns to a normal level, the commission estimates Vector would need to reduce its charges between 2-11% for each of the next 2 years. (Vector’s distribution charges comprise around 20-40% of the customer’s power bill.)

Ms Rebstock said the commission had given full regard to the Government policy statement issued on Monday: “The commission is committed to ensuring that there is effective investment in New Zealand’s basic infrastructure and our regulatory approach takes full account of appropriate infrastructure investment incentives for lines businesses.


“The commission considers that Vector’s actions are not consistent with the purpose of part 4A of the Commerce Act, nor with the objectives of the Government policy statement.


“Vector is focusing on the short-term interests of particular classes of customers who are also beneficiaries of its major shareholder, the Auckland Electricity Consumers Trust. Such customers receive a direct dividend & an additional implicit dividend by being undercharged themselves.


“The commission’s view at this time is that a declaration of control would be in the long-term interest of consumers.


“Overcharging & undercharging are both inefficient – that is, they are harmful to the New Zealand economy.


“Vector is aware of the imbalances across its customer classes and has had ample opportunity to improve the situation. Instead, during the time that Vector has been aware of the imbalances, the situation has deteriorated further for many groups of consumers.


“Vector is not making sufficient progress in redressing the overcharging of some customers & reducing its excessive revenues, and as a result the commission has moved to this intention to declare control.


“These are very serious issues. Vector is only able to overcharge some customers and undercharge others by abusing its monopoly power.”


Ms Rebstock said Vector was discussing an administrative settlement with the commission as an alternative to control. She said the release of the commission’s paper would help Vector to focus on the long-term interest of all its consumers and would add transparency to the process of removing overcharging.


Vector is a listed company, 75.1% owned by the Auckland Electricity Consumer Trust.


Since the targeted thresholds regime was implemented in 2001, the commission has published its intention to declare control 3 times: of Unison Networks’ electricity distribution services in September 2005, of Transpower’s transmission services in December 2005, and now of Vector’s electricity distribution services. The commission is considering administrative settlement offers from both Unison & Transpower.


If companies breach price or quality thresholds set for them, the commission can consider imposing control on their electricity services. If the commission makes a declaration of control it can then set rules – termed an authorisation – governing the prices, revenue &/or quality of those controlled services for up to 5 years. While the company may face penalties if it doesn’t comply with those rules, the operation of the company will continue to be undertaken by its management & board as normal. Control is not intended to compensate consumers for any past overcharging but to put in place constraints on the controlled business’s future performance.


Vector fights back


Vector chief executive Mark Franklin responded by saying he was astonished at the commission’s action and rejecting many of the allegations, “particularly the suggestion that Vector is earning excessive revenues.”


Mr Franklin said: “Vector’s overall rate of return for its electricity lines business in the year ending 31 March 2007 is forecast to be 8.2%. That figure is calculated using the commission’s own methodology set for the information disclosure regime for electricity lines businesses.”Under the price path assigned to Vector by the commission in 2004, Vector has to date recovered $8 million less than that allowed by the commission’s methodology.


“We also dispute the commission’s claim that it has given full regard to the Government’s economic policy statement of 7 August. Had it done so we would have expected extensive discussions on this issue. There have been none. The commission only had one full day after the Government issued the statement to take it into account. That is not adequate.”The Government statement clearly identifies that regulated rates of return should be commercially realistic and take full account of the long-term risks to consumers of under-investment in basic infrastructure. “I can state categorically that investment decisions Vector had put on the board agenda after the Government’s announcement are now in serious jeopardy because of the uncertainty created by the commission’s action. This includes investment to achieve first-world infrastructure consistent with Government objectives, especially security of supply.”The commission is fully aware that Vector has for the last 2 years undertaken a voluntary programme to address the legacy regional & customer differences and we have engaged in good faith with the commission on this. The commission has only in the last month indicated publicly that lines companies have until 2009 to correct these differentials. Vector was on track to achieve this target having started 2 years ago. “We take issue with the selective way the commission has presented the information supplied to it by Vector without giving any cognisance to the steps it knows Vector has taken and is taking to deal with these matters.” Mr Franklin then rebutted commission claims point by point:

Vector is not advancing the interests of Auckland Energy Trust Consumers at the expense of other customers. In fact the price differentials reflect in large part legacy issues arising from Vector’s acquisition of United Networks Ltd and Auckland residential users have already sustained the biggest price increases in the rebalancing exercise to date, with other regions seeing price decreases
Vector’s prices are within the price path threshold set by the commission in 2004. The price breaches the commission has raised with Vector are historic, relate to the 2003-04 year and were technical in nature. These involved a $76,000 price threshold breach on $477 million of revenue, being a difference in the forecast & actual recovery of Transpower transmission charges and quality threshold breaches caused by extreme weather. There have been no further price breaches since. Mr Franklin said the commission’s statements were inconsistent with recent statements by Ms Rebstock regarding the treatment of minor breaches
The revenue rebalancing Vector is engaged on can be achieved within the commission’s price path thresholds on a basis which is revenue-neutral to Vector and the commission has information from Vector showing this.

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Attribution: Commission & company releases, story written by Bob Dey for this website.

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