ENP Newswire -
Release date- 22082014 -
The results from the Technology business and notably our smart metering business partially offset the end of our entitlements to Kapuni gas at legacy prices and significant and well-signalled price reductions on our regulated energy networks.
Revenue fell 1.6% to
'This is the eighth consecutive year of increases, reflecting prudent management of our capital in the lead up to regulator-imposed price reductions on our energy networks and our determination to provide investors stability through regulatory periods. It also reflects our success in delivering services attuned to our customers, growing our portfolio of businesses and driving operational excellence.
'However, further recent regulatory actions place additional pressure on future dividends and investment in our regulated assets. 'We are investing in our people and supporting diversity in our business. This year we joined the 25
'Vector is helping to foster the next generation of directors with the appointment of
'Only a few years ago OnGas Bottle Swap, our smart metering business and
'We have similar aspirations for a number of emerging businesses within our portfolio of operations. We have this year installed close to 200 of our award-winning SunGenie solar units across
'We understand the pace of change in our industry will increase exponentially over the next decade and we are prepared. The balance of power is shifting from utility service providers to consumers. Energy distribution technology - largely unchanged for decades now allows customers to switch suppliers, switch energy solutions and switch from the grid.
'Customers are demanding choice and the highest standards of service from utility service providers. They are targeting energy consumption as an area for saving money and they are actively managing their energy needs. They are also environmentally conscious and more technologically savvy and therefore willing to adopt technology such as solar panels that allow them to generate their own electricity.
'These trends are of course challenging. As a direct result, the consumption of energy transported across our network is falling and the pace of this decline will increase in line with the growing affordability of new technology. 'Vector is at the forefront of this evolution. We are working on numerous initiatives around distributed generation, battery storage, smart metering, energy management, electric vehicles and gas smart meter technologies.
'New communications technologies such as our outage manager app, which provides details of outages and the likely time to the restoration of power to smart phones and the Vector website, are meanwhile improving the customer experience. Since inception the outage manager received more than 2.6 million hits and it was used heavily during the recent storms. We are now looking at making this technology available to other network companies around the country.
Regulation and investment
'We are concerned the regulatory regime is not keeping pace with this technological change and global trends. Over the long-term, this could discourage investment in regulated energy networks and put at risk the security of the energy supply.
The regime assumes that new network investment will have an average life of more than 40 years and that the bulk of our positive cash flows should be skewed towards the end of that period as we are preparing for the renewal of those assets. As a result it requires Vector to commit to significant upfront capital expenditure and accept a cash flow profile that does not reflect the risk we are taking.
'Investors will look warily at such a long duration investment proposition, especially in the face of such disruptive technological and social change. Vector faces significant risk that, over a 40 year period, essential assets may become redundant and cash flows deferred under the regulatory regime may not be recovered. We believe a more sensible approach is for the
'Because the regulator's assumptions for asset revaluation rates do not match the actual rates, we are not able to generate the returns determined by the regulator.
It is clear the frequency of change to core elements of the regulatory regime is adding significant cost to
'Vector operates its regulated networks safely and efficiently. Our electricity distribution network is among the lowest cost in the country on measures such as operating expenditure per unit of electricity delivered and average operating expenditure per connection. '
'The Government and
'We have invested in good faith to support this growth with capital expenditure on our electricity network rising 8.1% or
'Nevertheless, the unattractive cash flow profile and the allowable returns on our regulated networks are making it increasingly difficult to advocate for incremental capital to be allocated to our regulated businesses, especially when we see the potential for much more appropriate commercial outcomes in our non-regulated activities. 'We will continue to work with the regulators and government to address the imbalances we see.
'The coming financial year will be challenging with regulatory pricing adjustments relating to prior periods and an expected continued decline in per capita electricity usage offsetting the growth in connection rates. However, at this stage we are comfortable with consensus estimates for adjusted EBITDA of
We have a great team committed to our core goals and we remain focused on customer solutions, the demands of our gas customers, delivering on the potential of our Technology operations and - assuming commercial rationality in the regulation of our energy networks emerges - meeting population growth in
Weather had a significant impact on the Electricity business in the 2014 financial year. Warmer winter temperatures contributed to an overall 1.0% decline in consumption whilst an unusually high number of extremely windy days contributed to a significant increase in normalised SAIDI2 - our measure of network reliability. This rose to 141.3 minutes for normal operations in the regulatory year to
We have devoted significant effort to improving our ability to prepare and respond to storm events. Together with our field service provider partners, we make a huge effort to minimise customer outages. We have also focused on improving communications during outage events, particularly via the Vector outage manager app and we will continue to promote prudent tree management with our customers to assist in the protection of power lines during a storm.
We are starting to see the impacts of
Despite the increase in connections, power transported across our networks fell to 8,252 GWh from 8,332 GWh. The trends for consumers to use less energy and to continue to look for ways to reduce their consumption as well as the warmer weather were responsible for this decline. Both
Electricity revenue was in line with last year, although this result includes an approximately
Transpower transmission charges) and a
EBITDA fell 7.1% to
Just as we are seeing in electricity, our gas distribution networks are starting to experience significant connection growth - overall new connections were up 21.0%. Increased gas usage by industrial and commercial customers was a key driver in lifting gas distribution volumes by 2.3% to 21.9 PJ from 21.4 PJ. Gas transmission volumes on the other hand fell by 5.8% to 111.3 PJ from 118.2 PJ, primarily due to lower demand from power stations. Gas transmission revenues however are approximately 90% fixed (relative to capacity reservation) and are therefore largely independent of actual transmission volumes.
Overall, Gas Transportation revenue fell 14.8% to
Gas Transportation EBITDA fell 21.7% to
The Gas Wholesale result was supported by strong growth in our LPG business. This partially offset a weaker result for gas trading, due to increased competition and the end of our entitlement to Kapuni gas at legacy prices.
LPG volumes were up over the previous year, with strong growth in wholesale and across all cylinder markets. Liquigas LPG tolling volumes increased 17.8% to 178,510 tonnes from 151,544 tonnes. Competitive pressures in the market are intense, but we continue to grow our position.
Natural gas trading volumes fell 7.5% to 24.5 PJ, reflecting lower demand from electricity generators, while industrial and commercial volumes were flat. Production issues at the Kapuni field during the first quarter were largely rectified by the field operator, with average production of 39.0 TJ per day in 2014, back up to over the 2013 levels of 38.8 TJ per day.
Revenue fell 6.0% to
Vector's rights to approximately 7.3 PJ of Kapuni gas at legacy prices were confirmed by the
Vector retains the right to purchase 50% of the gas remaining in the Kapuni field from
Vector's metering business continued to drive strong growth in our Technology business during 2014. Revenue increased 25.6% to
The focus of the metering business over the 2014 financial year was on delivering on existing contracts and developing an enterprise scale meter data management platform. We installed approximately 170,000 smart meters during the year, an average of over 14,000 meters per month.
We are approximately three quarters of the way through our currently contracted deployment, and we expect to maintain our current rate of deployment over 2015. There are still approximately 845,000 legacy meters remaining across
Total capital expenditure increased 13.6% to
On the electricity network capital expenditure was up
In the Technology business capital expenditure of
Vector maintains a sound balance sheet. We have a well-diversified debt portfolio with a weighted average duration of 5.0 years as at
Our gearing, as measured by net debt to net debt plus equity, rose to 51.6% as at
Standard & Poor's rating action will not have any immediate financial impact on our business given the long dated duration of our debt portfolio. We remain an 'investment grade' credit risk, with a BBB/stable rating from Standard & Poor's and a rating of Baa1/stable from Moody's.
Chief Financial Officer
Tel: +64 9 213 5179
Mob: +64 21 441 311
Tel: +64 9 978 7638
Mob: +64 21 579 522
Vector is listed on the
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