Fitch Ratings has said today that its 2010 outlook for the New Zealand Power & Utilities sector is broadly negative, but some positive developments are likely to occur over the medium-term.

"Utilities, in particular the South Island-based generators, remain exposed to hydrological risks due to the inter-island transmission constraints. Also, the approval of key transmission grid projects will result in a deterioration of Transpower's credit profile, unless it receives new equity from the government," said Sajal Kishore, Director in Fitch's Energy & Utilities team. "However, Fitch anticipates a reduction in the level of regulatory risk for the electricity sector in the long-term, following legislative changes to the regulation of the sector," added Mr. Kishore.

The agency's report 'New Zealand Power & Utilities Credit Outlook 2010', published today, gives an overview of the impact of certain legislative changes, such as the Climate Change Response (Moderated Emissions Trading) Act 2009, the Commerce Amendment Act 2008 and the proposed Electricity Amendment Bill, the credit quality of utilities, and the regulatory environment.

"The Electricity Amendment Bill will have credit implications for NZ's power and utility companies in the longer term. However, the actual impact on their creditworthiness will be dependent on the details of the final legislation," notes Mr. Kishore.

In the report, Fitch also notes that hurdles in the approval processes for new generation capacity remain a key credit risk issue, with larger wind energy projects in particular facing the biggest challenges. The report also considers the impact of proposed amendments to the Resource Management Act 1991 on new generation capacity.

Other issues highlighted in the report are the decline of indigenous gas reserves and the expected gas supply shortage post-2015; wholesale and retail pricing and market competition; the planned additional generation capacity through to 2015; and the role of thermal plants in a hydro-dominated electricity system.