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Electricity industry's short-term pain, long-term gain - Fitch

Tuesday 24th May 2011

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Legal and structural changes to the electricity industry will pose transitional challenges but provide greater transparency and certainty of earnings in the long run, says an international ratings agency.

A report by Fitch Ratings, released today, said the country's power and utilities sector faced many challenges, including the structural changes to the state-owned electricity companies driven by the Electricity Industry Act 2010, and continued regulatory uncertainties for the electricity network businesses.

Structural changes, through the physical and virtual asset swaps between the state-owned electricity companies, had been a key driver of high retail competition, said Fitch's Sajal Kishore.

High numbers of people swapping supply companies were unlikely to ease over the short term and would continue to put downward pressure on retail margins, he said.

"However, Fitch expects the North Island-based state-owned electricity companies to benefit by gaining competitive South Island generation capacity."

The agency's report also said changes in rules for the electricity distribution and transmission business would provide greater transparency and certainty of earnings over the long term.

However, the transition to the new regulatory regime has had significant hurdles and setbacks and Fitch expected continued disruption, given lines companies' challenges to the new rules.

"Finalisation of rules, processes and requirements related to regulation of electricity networks are important to provide certainty for investment decisions. NZ's power utilities will face regulatory uncertainty in the near-term," Kishore said.



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