NEW ZEALAND ENERGY 2006

Regulatory regime threatens NZ electricity and gas network sector: Standard & Poors

STANDARD & Poor's Ratings Services has downgraded its outlook for New Zealand national electricit...

The ratings revision sounds a warning to other New Zealand electricity and gas network companies that their ratings may be weakened through any government intervention in their businesses.

Standard and Poor’s Melbourne office this week affirmed Transpower’s AA-/A1+ corporate credit rating, but revised the company's outlook to negative after watchdog organisation the Commerce Commission last week released its reasons for possibly controlling Transpower’s charges to customers.

The Commission said that if it did not accept the company’s explanations for breaching price thresholds, it could impose price control from April. Late last year, Transpower announced a price increase of 19% from April and average increases of 13% for each of the following five years.

The ratings agency said the negative outlook reflected the heightened uncertainty and lack of transparency in the New Zealand regulatory regime as it applied to electricity lines businesses.

"Recent published comments by the commission has cast serious doubt on Transpower's ability to apply future charges that are sufficient to protect its credit profile should the company continue with its grid upgrade plan," said Corporate & Infrastructure Finance Ratings credit analyst Justin Davey.

Standard & Poor's was unable to predict what the commission would decide on March 31. It said that given the complexity of the issues, a final resolution of the matter might take several months.

"The decision's near-term impact on Transpower will depend on the strategic response of the company and its shareholder, the government of New Zealand," Davey said.

“Transpower has headroom under its rating to weather some short-term weakening in its credit profile. However, should uncertainty persist in how price regulation is determined, there exists the risk that Transpower's corporate credit rating could be downgraded.”

Davey said there had been a weakening of the credit profiles of electricity and gas lines businesses in New Zealand “due to the shadow of regulatory intervention”.

While the ratings of major network companies Powerco and Vector remained unchanged – at BBB/Stable/A-2 and BBB+/Negative/NR respectively – the ratings agency would continue to closely the situation regarding any future decisions by the commerce commission.

Standard & Poor’s also had concerns over the potential for conflict and lack of timeliness due to the split roles and responsibilities of the Electricity Commission and the Commerce Commission in determining grid upgrades and return on expenditure.

TOPICS:

A growing series of reports, each focused on a key discussion point for the energy sector, brought to you by the Energy News Bulletin Intelligence team.

A growing series of reports, each focused on a key discussion point for the energy sector, brought to you by the Energy News Bulletin Intelligence team.

editions

ENB CCS Report 2024

ENB’s CCS Report 2024 finds that CCS could be the much-needed magic bullet for Australia’s decarbonisation drive

editions

ENB Cost Report 2023

ENB’s latest Cost Report findings provide optimism as investments in oil and gas, as well as new energy rise.

editions

ENB Future of Energy Report 2023

ENB’s inaugural Future of Energy Report details the industry outlook on the medium-to-long-term future for the sector in the Asia Pacific region.

editions

ENB Cost Report 2021

This industry-wide report aims to understand current cost levels across the energy industry