KEY POINTS:
Under-investment could put electricity supplies under pressure and restrict new power projects, says global credit rating agency Fitch Ratings.
Fitch yesterday gave New Zealand's utility companies a negative credit outlook for 2008, continuing a trend of recent years.
At the same time the agency moved utilities in Australia and other Asia Pacific countries to "stable outlook".
Disputes between electricity transmission company Transpower and the regulators had delayed approval of critical projects, including the inter-island transmission link, Fitch said.
Meanwhile, under-investment in the network would likely restrict new generation construction, especially renewable power plants in the South Island, potentially putting pressure on future security of electricity supply.
The Government's energy strategy for 90 per cent renewable power by 2025 was an ambitious target, while the upcoming Climate Change Bill proposed banning the building of base-load fossil-fuelled power plants for the next decade.
The strategy and the bill would influence capital expenditure plans and would likely increase retail electricity prices, Fitch said.
New Zealand already produced about 64 per cent of its power from renewable sources, which was a high proportion of total needs compared with many developed countries. An expected shortage of gas after 2010 continued to be a key concern.
Steve Durose, regional co-head of energy & utilities Asia-Pacific, said although the outlook for 2008 was negative there were positives in the sector. "We think it's positive that the Government's clearly identified what the framework is so there's less uncertainty risk and also we're seeing the regulatory framework clarified to the extent that in the future we wouldn't expect to see so many unexpected regulatory outcomes."
Goldman Sachs JBWere analyst Matthew Henry said the Government was in the process of reviewing the regulatory environment. "My opinion would be that what we've seen to date, given it's not completed, does look better than the status quo and what we've seen historically."
The regulatory environment had a key impact for equity investors in regulated companies, he said.
"The uncertainty that Fitch highlighted as being an issue historically for bond holders has absolutely been an issue for equity holders as well."
Sajal Kishore, Fitch Ratings associate director for energy & utilities, said there had been a number of adverse pricing decisions for Vector, Powerco and Transpower.
Unfavourable regulatory determinations in 2007 were likely to affect cash flows and the credit quality of regulated utilities in the coming years. Legislative amendments had been a mix of positive and negative developments, Kishore said.
* CREDIT OUTLOOK
Used by bond holders to asses investment risk.
New Zealand utilities have a negative outlook.
Government policy is likely to increase retail prices.
Under-investment might pressure future power supply.
Expected gas shortage after 2010 is a main concern.
