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Vector credit rating may come under scrutiny

Friday 26th October 2012

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Vector's credit rating may come under the gun after the Commerce Commission's draft rules to set the default price-quality paths for gas pipelines would impose a sharp price cut for the Auckland lines company, according to Moody's Investors Service.

The lines company's Baa1 credit rating could come under pressure if the final regulatory decisions put too much strain on Vector's financial metrics, Moody's said in a comment yesterday.

About 86 percent of Vector's earnings through the gas and electricity transportation business are at risk of being cut, the rating agency said.

"The proposed reduction in gas transmission and distribution tariffs by 25 percent and 16 percent respectively will put further downward pressure on Vector's financial profile as it comes after the 8 percent tariff reduction proposed by the commission for the electricity distribution business in August," Moody's analyst Spencer Ng said.

Vector shares were unchanged at $2.75 yesterday, having shed 5.2 percent on Wednesday when the gas price path was announced. The commission is expected to make its final determination on electricity price paths next month and gas tariffs in February.

Earlier this month, Vector chairman Michael Stiassny told shareholders at the company's annual meeting that the commission was imposing price cuts on the lines company using a flawed methodology that risks undermining investment in critical public infrastructure.

"Price cuts as the commission is suggesting, if sustained over the long term, threaten continued investment in our network and therefore the infrastructure to support growth in Auckland and the broader economy," said Stiassny.

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