Vector profits hit by power contract costs

By Mark Reynolds

Auckland power lines company Vector is set to record a flat profit for its financial year to the end of March, despite having sold the retail operations of Mercury Energy for more than $50 million during the year.

Vector is expected to announce its financial results next week and company officials are suggesting they will not be too flash. That means Vector consumers should not expect any significant benefit from the six-monthly dividend they are traditionally paid by the power company.

Consumers and shareholders of power companies elsewhere in the country, including United Networks (formerly Power New Zealand) on the North Shore and Tauranga-based TrustPower have benefited financially from the sale of parts of their operations. But most of the money Vector received for its Mercury operations will be soaked up by other costs, company officials have indicated.

Vector's costs include big losses on power generation plants that were built just before changes to energy laws made electricity markets much more competitive. The law changes also mean Vector has effectively lost millions of dollars on contracts to pre-purchase electricity.

The exact level of earnings and any dividend payout will be finalised at a board meeting of Vector's directors next week. The directors had to delay finalising the accounts following High Court action by the Auckland, Manukau and Papakura local councils, who are trying to assert some control over Vector's assets.

Vector is owned by the Auckland Energy Consumer Trust (AECT), but its unusual corporate structure means the trust does not control the company's boardroom.

Following last year's power crisis in central Auckland, an independent inquiry suggested that structure should change so that whoever owned the company controlled the board room.

The local councils are involved because under Vector's unusual ownership structure they are due to take control of the AECT's assets from 2073.

The AECT has commissioned a report from investment banking firm Merrill Lynch to look at future ownership options for Vector, and that report is currently being evaluated by McKinsey & Co, management consultants.

The options include a full privatisation of Vector, which would likely result in at least some of the proceeds being distributed to consumers.