Vector Limited (VCT)

[wack]

OFFICE: VCT: Vector - Officer change 03:26pm
VCT
15/08/2006
OFFICE

REL: 1526 HRS Vector Limited

OFFICE: VCT: Vector - Officer change

Vector advises that Peter Brown, Group General Manager Organisational
Services has left the company effective 11 August 2006.
End CA:00135414 For:VCT Type:OFFICE Time:2006-08-15:15:26:22

[beacon]

Vector will be under pressure. Waiting till the dust settles. Would it see $2?

[k1w1]

Some commentary on the Vector situation from Infratil, in their latest email update. Although lengthy it is interesting as they are not not involved in energy distribution but know what they are talking about:

"... for Infratil's shareholders (and prospective shareholders) the main event of the last week was the conflict between Government's Policy Statement (GPS) on energy transmission, released on Monday, and the Commerce Commission's announcement of intended price controls on Vector, released on Wednesday. The infrastructure industry took heart from the GPS which sent a strong message that Government wants infrastructure investment. The Commission's response brought the industry back to ground. For infrastructure companies the cost of capital is crucial. Behaviour by a regulator that increases investor risk will add to the cost of capital, and ultimately to consumers' costs. While the Commission's conflict with Government will add a
risk premium, the decision to regulate is also based on some dubious algebra. The Commission's finding that Vector was over-earning was arrived at by deciding that anything better than a 7.35% per annum return on capital was a monopoly rent. [u]It would be very hard to find any expert in the arcane field of cost of capital who would agree with such a low benchmark. Somehow the Commission and its WACC adviser, Dr Martin Lally, managed to achieve this. </u>


Although Infratil's share price was swept along with the capital markets' dismay over the Commission's announcement it should be noted that Infratil sold out of energy distribution several years ago and has no direct exposure to this argument. Further, the proportion of Infratil's income that could ever be subject to this type of regulation is small. Nevertheless, all infrastructure investors support transparent, efficient and balanced economic regulation, and hopefully New Zealand's regulatory authorities will learn, and improve, from their errors.

NZ Government Policy Statement on Energy Transmission

The Government released a Government Policy Statement (GPS) on energy
transmission last week, which was (perhaps coincidentally) shortly followed by the Commerce Commission announcing intended price controls on Vector (after Transpower, New Zealand's largest energy distribution company). The GPS is an important indicator of Government policy objectives and will have long term ramifications. The Commerce Commission move shows that the Government's powers in this area are fettered, unless it resorts to legislation.

The upshot of all this is that New Zealand will plan to invest more in the grid and the Commission will have broader criteria to encourage and allow it to approve investments and that Transpower will be allowed to earn a return on those approved investments. Transmission investment should err on the side of over-capacity to ensure security (ie better to have back-up than a break-down). This is expected to mean a higher cost to users (the Government has effectively interpreted the electorate/users' mood and decided they would prefer to pay more for certainty).

In addition to indicating its preferences for transmission development, the Government also signaled that it hopes to see local energy companies investing in their networks. To this end it advised ComCom to make sure that its regulation of network pricing was not discouraging desirable investment. The general interpretation of the GPS was that Government had become concerned that the Commerce Commission and the Electricity Commission were more interested in controlling prices than in making sure that investment was undertaken for secure supplies and a for renewable generation future and that generally the Commerce Commission should be willing to "cut infrastructure companies some slack" as under-investment is a worse outcome for the Nation than a small level of excess profits - especially as "excess profits" tends to be a function of some fairly dense algebra where even experts admit to the need for a margin of error.

However, no sooner had Go

[kura]

Quite a well written commentary by IFT, though I doubt if they would be all that impartial

[CJ]

Sums it up quite well. The two annoucements contradict each other and the 7.XX% return on WACC is far to low (infratil wouldn't invest in something that low so why should anyone else - except a government).

ComCom were right about different pricing policies for Auck and Well but should have said they had (say) one year to even it out rather than the way they did it.

[Flying Goat]

quote:Originally posted by zac

Quote: 'Incidentally, were you Auks aware that here in Welly, the mayor is on record as accusing Vector of price gouging Wellingtonians to subsidise Aucklanders?'

How can that be? Vector has just been continuing the pricing policy of United Networks with gradual adjustment. And then Jafas will be subsidizing Wgton consumers. And anyway since when has any business had the same pricing policy for all customers. We seem to be going down the path of progressive price control to suit a socialist agenda. Is Air NZ now going to have to charge everyone the same per km rate regardless of the customer profile or the route?

Yeah, and Auckland Mayor (Hubbard) had the audacity to accuse Vector of holding at ransom... yet him with his 60% rate rises to Auckland city residents, to fund the pulling out of perfectly good trees, to be replaced with flora that will not grow here... as well as sending the lazy-ass public servants (of local council) around the world with first class air tickets... oh how Auckland sees it made a big mistake letting voting its Mayor, although we weren't really spoiled for choice... apparently the tight-wad still opts for the free lunches in the council tea rooms.... oh dear what a sad state of affairs..

[kura]

FG, my Mum lives in a central Akld property (scummy old house with a big section) her rates have just gone up from $2600 to $4500 Who is holding who to ransom ????

Yep, just mailed off an application for rates rebate (to internal affairs) but as max rebate is only $500 this is also a joke, given the criminal increase in rates.

[Toddy]

Makes you ask the question - who is in charge. Is this what the public voted for during the last election. What is the Govts role in business and investment, especially when it comes to infrastructure. Vector should stand tall and make as much noise as possible. IFT is never scared to stand up, but where are the other NZ Companys. Should Telecom have another go now that there are more companys at the wrong end of these regulatory decisions. The other line companys should get involved now as they do not have the resourses to fight on their own.

Read on, its a great article.


NEW ZEALAND: YES, YES AND YES ... MINISTER
FRAN O'SULLIVAN
Cabinet ministers intent on securing a suitable return on state-controlled enterprises' infrastructure investments are rewriting the rules of the free market, with surprisingly little resistance from the business sector.

Communications Minister David Cunliffe set the ball rolling when he dealt to Telecom's broadband monopoly.

Finance Minister Michael Cullen is also in the frame, wanting colleague Pete Hodgson to give Air New Zealand approval to form a tawdry cartel with Qantas on the transtasman route.

Energy Minister David Parker is the latest one to signal a shift back to Government control over just which company gets to make major infrastructure investments in this country - and on what terms.

A raft of official papers posted under his name on the Ministry of Economic Development website signals a shift to
central planning in the energy sector.

Effectively, Parker is using the Transpower debacle - with the state-owned transmission company under repeated fire for failing to get certainty on upgrading the national grid to service Auckland's growing needs - as leverage for what looks like a ministerial intention to take charge of decision-making on major grid upgrade plans.

That's unless the Electricity Commission and Transpower don't manage to reach a suitable (to the Government) way through their impasse before Parker also makes good on another implicit threat: to shift grid planning from Transpower to another independent body.

Parker's Cabinet paper is a little doozy.

Ostensibly, it's all about ensuring this country's long-term supply of energy is underpinned by suitable transmission and lines infrastructure. But any hand-over-heart free-marketer should be concerned.

It is clear that Parker is also keen to ensure the Government's interest as prime shareholder in Transpower is assured.

That's why the Government wants the Commerce Commission to consider the need to guarantee a relevant return for infrastructure investments - not simply the targeted control regime, which sees the commission setting price/revenue thresholds for Transpower and lines companies such as Vector. It wants to limit these companies' ability to extract excessive profits, making sure they face strong incentives to improve efficiency and pass on lower prices to consumers.

Unfortunately for the Cabinet, there are two contradictory forces at play.

The Commerce Commission, under the robust leadership of Paula Rebstock, has taken a single-minded approach to the price-fixing cartels and monopolists that dominate New Zealand business.

Cartels operate across many sectors, masquerading as competitors in public but in fact co-operating to undermine
consumers' best interests.

Rebstock has several big private companies in her sights and has already ripped into Transpower and Vector for profiteering at consumers' expense.

But now she's basically being told her job is to ensure such companies get a decent return and to place less emphasis on consumer rights.

Parker says his section 26 statement is not a Government direction, but that is mere sophistry. Coupled with the clear intent disclosed elsewhere in his Cabinet paper to amend the Commerce Act once Commerce Minister Lianne Dalziel's review is finished, it can hardly be read as anything else.

But is this the way for the Government to behave?

The Cabinet cabal that will, ultimately, roll through t

[StainlessSteelRat]

quote:Originally posted by Toddy
A principled approach would have been for the Government to effectively acquire the local loop itself, paying Telecom a handsome fee that would compensate its shareholders for the hit to the value of their investment.

I have no doubts that their intention is to "acquire" the local loop, but it's obvious they don't want to pay the asking price for it - and are intent on driving Telecom's sp down to a level that Cullen is more comfortable with. All aided by a quisling media, the likes of which we haven't seen since Muldoon was in power.

[whatsup]

Q::: If VCT was to be quoted at $2.00 which of us would buy it and for what reason given the current uncertainity of its near term future.