Vector endorsed despite crisis warning

Investing in energy network company Vector has been endorsed by a leading fund manager, despite its warnings of a looming power crisis.

Vector has been warning that power cuts to Auckland homes and businesses might come as early as winter 2007.

It says the system is too stretched to cope with the failure of a major part of the infrastructure - such as Contact's gas-fired power station at Otahuhu.

The Electricity Commission has asked for submissions from the public and industry about possible alternatives to Transpower's plan for a controversial new 400kV transmission line through the Waikato.

Simon Botherway, principal at Brook Asset Management, which expects to be the second-largest Vector shareholder after its IPO, said he shared Vector's concerns about security of supply.

It did not change his view of Vector as a good investment though, since many of the potential problems came from a lack of past investment in generation and transmission. These were not caused by Vector.

Vector says that the kind of blackouts it is warning of would not affect company revenues, since it would be "shaving" demand for electricity at peak times. The actual amount of electricity sent through the system would not change, but big users may not get as much power as they needed. It would not be like a "dry winter" where electricity use falls over a long period.

Transpower runs the national power grid under a philosophy known as "N-1" which means it can cope with the loss of any one major component, be that a transmission line or power station. Vector says this level of protection was close to being breached last month.

In its submission to the Electricity Commissioner, it says that after looking at other comparable cities around the world, a higher standard of security - approaching N-2 - should be in place for Auckland.