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One-off boost to Vector earnings from Transpower access deal

Tuesday 15th June 2010

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National grid operator Transpower will pay the Auckland network company, Vector, $53 million for long-term access rights to an underground tunneland other network assets to strengthen the grid through north Auckland and Northland.

The result is likely to push Vector's reported post-tax earnings close to $200 million in the year to June 30, 2011, thanks to a one-off boost to the bottom line estimated at a little under $30 million from the transaction.

The deal is a cost-effective alternative to the major roadworks and other disruptions that would have been required for Transpower to construct its own route, with around half the proceeds expected to go straight to the Vector bottom line. The payments are scheduled in June 2011 and 2012, but the full impact is expected to be booked next year.

The payments have not previously been factored into Vector's profit forecasts and markets would "look through" the one-off impact, said Matt Henry, an energy stocks analyst with Goldman Sachs JBWere, who is forecasting normalised net earnings for Vector in the next financial year of $173 million.

The agreement will allow Transpower to run a high voltage cable circuit between its substation in Penrose, south Auckland, to Albany, north of the city, using a tunnel between Penrose and Hobson St in the central business district, the Hobson St and Wairau Rd substations, and the North Shore Transmission Corridor from Constellation Drive to Albany.

Fragility in the Auckland grid is a recurring issue, with a power cut to parts of the grid north of the Penrose substation in February 2009 highlighting the issue the agreement will help to solve.

Vector’s shares rose 1.4% to $2.14 in trading on the NZX today, and have climbed 4.5% this year.

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