KEY POINTS:
An unsettled regulatory environment continues to weigh on the credit profile of New Zealand's utilities, credit ratings agency Standard & Poor's said today.
"Regulatory uncertainty hasn't yet led to any adverse rating actions," the agency said.
"However, if the current preliminary regulatory decisions are finalised and lead to material deterioration in financial metrics of the companies affected, negative rating actions could occur."
The agency said there were several issues of note including the implications of potential changes to the Commerce Act, which regulates the nation's utilities.
"In the past six months, there has been a number of draft and final regulatory decisions by New Zealand's Electricity Commission and Commerce Commission, most of which have been unfavourable to utility companies," S&P analyst Chris Cudsi said.
Prospective Commerce Commission decisions would be "cash flow constrictive," as had been seen in decisions affecting Vector, Powerco and Transpower.
Concerns around long-term gas supplies also remained a significant credit issue. Thermal generators which had traditionally driven wholesale electricity prices were vulnerable to the availability and cost of new gas supplies.
Other issues of concern included the pipeline of new generation investment, the Government's proposed emissions trading scheme, and significant recent management changes.
New investment was being driven partly by efforts to diversify portfolios towards renewable energy.
But S&P said not all the projects would be viable, given consent delays, competition for construction workers, volatile wholesale prices and the lead times involved in generation.
Carbon penalties could also impact on companies revenues, including power generators from 2010, although the picture would be clearer in coming months.
S&P also noted there had been a high number of key management departures in recent months. They included the chief executives of Meridian, Vector, Powerco and Transpower, changes on the boards of Vector and Transpower, and the loss to Vector's chief financial officer.
While the departures had not been detrimental to credit ratings, they could signal changes in strategic direction and risk appetite, the agency warned.
- NZPA
