LEADERSHIP Chair and Group Chief Executive report
provides a framework for a more certain outcome in these sorts of scenarios, and ensures infrastructure providers can continue to focus their efforts on all their customers. We also hope to see genuine progress this year on updating tree management regulation which is already significantly overdue. Updated regulation has been under consideration by the Ministry of Business, Innovation and Employment for several years now, and the April 2018 storm in Auckland provided a sharp reminder of the challenges created when trees near power lines are not adequately managed by owners. To play our part, we increased the amount we allocate for vegetation management, and in September 2018 launched a new programme to raise awareness of the need to have the right trees in the right places, by planting thousands more. The Vector Urban Forest initiative means we will replace every tree we must cut down for network management or safety purposes, with two new natives, planted in areas that help with local ecological restoration schemes. Looking ahead to the remainder of FY19, the guidance given in August for adjusted EBITDA remains appropriate. As noted at the time, this guidance did not include the impact of adopting NZ IFRS 15 and 16, which, together with other minor accounting changes, are expected to impact FY19 adjusted EBITDA by approximately $10 million. Our guidance range, adjusted for the impact of these accounting changes, is therefore $480 - $490 million. Our result in the first half of the year benefited particularly from strong electricity volumes. Should this continue in the second half of the year, we would expect the FY19 result to be towards the top end of our guidance range. Looking further ahead, Vector’s future earnings and ability to pay ongoing increasing dividends could be significantly influenced by the reset of our electricity network revenues for the period 1 April 2020 to 31 March 2025 which is known as the Default Price Path 3 (DPP3).
The Commerce Commission has now largely confirmed the methodology that will apply to this reset. The key remaining variables are the five-year New Zealand Government bond rate during June, July and August 2019 (which is used to set the regulated Weighted Average Cost of Capital for DPP3) and the network expenditure allowances and quality targets that will apply to DPP3. The Commerce Commission expects to announce its draft decision on 31 May 2019 with a final decision due on 28 November 2019. We will provide a further update when we release our full year results. In accordance with our dividend policy, we will review our dividend approach once the parameters for DPP3 have been confirmed. Regardless, Vector will need to progress its transformation and continue to show leadership on technology, resilience and the provision of customer choice. We are certain that the industry will continue to be disrupted and the impacts of climate change will increasingly be felt. Vector will need to not only stay ahead of the curve, but also to continue to balance the needs of customers today with those of the next generation. Our vision is for Vector to create a new energy future for New Zealand. A future where customers are fully empowered and have control and choice over where, when and how they use energy. A future where all consumers get the benefits of new energy technologies, not just the more advantaged. We want Vector to attract the best talent in New Zealand and contribute more than our fair share to a more sustainable, more equitable energy system. We want all our people and the public to remain safe around energy.
Dame Alison Paterson Chair
Simon Mackenzie Group Chief Executive
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Vector://IR 19
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