“Soft” conditions signal a hard landing for Vector in the new economy

 There are a number of statements and omissions that stand out from Vector’s recent operations performance summary and the claims made at the Annual meeting on Friday that highlight concerns Vector is not responding to current environmental challenges nor positioned to maximise value from the “new” economy.

 Vector’s traditional business approach has been to focus on increasing electricity and gas volumes and the number of new connections. It is convenient therefore to claim that current “soft” economic conditions are the big challenge ahead for the company while ignoring the impact of climate change, consumer demand for distributed renewable energy (which will lead to more potential customers using less traditional grid power and more home or street produced power traded via a smart grid) and the push to encourage energy efficiencies. These factors are now a constant for Vector to respond to regardless of a warmer than average August or the non-emergence of economic green shoots.

Vector is still silent about energy efficiency opportunities such as solar hot water. Nova Energy meanwhile has gone to market with a pay-on-your-bill in monthly instalments offer to consumers in the Auckland region. Vector, the largest lines company in New Zealand, operates two ripple control systems in both North Shore City and Central Auckland. Ripple control systems turn off householder’s hot water cylinders at peak times to lower or ‘shave’ peak loads. Joining the dots it should be Vector leading the charge in this area. Hot water control has always been a core part of the business but should now be positioned as a clear commitment to energy efficiency as part of the new business.

What the Trust, as the majority shareholder, needs to hear from Vector is how the company intends to actively invest and/or support market solutions that play a role in solutions for climate change for example solar, smart grid solutions, distributed renewable energy. At the moment Vector appears to be feigning a commercial interest to appease the regulator rather than acting through geniune commitment.

 The Trust should also be interested to hear how Vector is growing other areas of the company as well as adequately investing in the core business. The ambition is there to develop a high-speed fibre network but to date the performance of Vector Communications Limited has been disappointing and the subsidiary has failed to leverage off access to an extensive the electricity infrastructure.

 The claims by the Chairman that substantial costs savings have been made from efficiencies in this current financial year are not necessarily grounds for congratulations. Shareholders have enjoyed a healthy dividend this year ($98m) but this needs to be balanced with reassurance that Vector is making necessary capital expenditure to ensure reliable and safe supply. These cost savings have also been achieved by cutting back in the very areas of the business where investment is most needed. For example over the last year Vector has quietly disbanded its team working on renewable energy and restructured the Vector communications business into the commercial team thereby taking away its market prominence.

It is essential that the next operations performance summary provides a much more convincing account of how Vector is not just waiting for cold weather to improve performance but is leading the way in responding to and adding value from emerging  environmental opportunities.