Vector Limited (VCT) Earnings Call Transcript & Summary

[Presentation]

[Foreign Language] Good afternoon, and welcome to this meeting. My name is Jonathan Mason, and I am Vector's Chair. I'd like to acknowledge Ngati Whatua Orakei as [indiscernible] for Central Auckland where we are today. I hope you found the video interesting that you just saw. It focuses on a project to install a major new underground power cable at a cost of $50 million to boost electricity supply capacity and reliability for the growing work port area. It's just one example of the types of investment Vector is making to support an increasing demand for electricity, including the electrification of transport and to enhance resilience and reliability against the impacts of climate change. As we have a quorum and it's a little past 2:00 p.m., I will now declare open the 2023 Annual Meeting of Vector Limited shareholders. For the agenda, we're starting today with ordinary business, which includes short addresses from myself and Simon and a review of the annual report and financial results. Then the only item to be voted on today is the appointment of our auditor. After that, we'll move to general business, including Q&A. Now today's meeting is a hybrid where shareholders can participate by asking questions, and voting here in the room as well as online. And as this is a shareholder meeting, we ask that you please do not use the time for asking operational or customer service questions. Members of our customer team are available here in the room and will be happy after the meeting to take those types of questions. The time for relevant share questions then is about the annual report and the results after our presentations, and we'll have microphones which will be available to you. Once you've asked your question, give the microphone back so that others can have their term. There'll be time for general questions as well at the end of the meeting. Now we're going to try limiting the questions that each person can ask the 2 questions only, but we know you're very interested in Vector. And so we want as many shareholders to have an opportunity to ask questions as possible. And if you have more questions, incoming Chair, Doug McKay, Simon MacKenzie and myself and management and the other directors will be here after the meeting. We're going to stay for as long as you need, hopefully, that's like at most an hour, but we'll see. So -- but you can ask as many questions as you want. And now for the media. While we welcome any members of the media to our meeting today as observers. Please hold your questions during the meeting. If you'd like to talk to Simon or myself after the meeting, make yourself known to one of our communications team who are at the back of the room or call our usual media phone number. If you're online and you'd like some help, you can type your query and one of the Computershare team will assist you. Now for some boiler plate voting stuff. Voting today can be conducted by way of a poll. If you're here in the room, you can mark your voting paper at any time and a team member from Computershare will collect the voting forms at the end of the meeting. If you're online, you'll be able to cast your vote under the vote tab once I declare voting open. I will indicate when voting will close so that you will have a final opportunity to cast your vote. And just we have 1 vote today shouldn't be so demanding. Now those instructions now complete, I declare voting open, and the proxy appointments are shown on the screen. And it's now my pleasure to introduce my fellow directors: Alastair Bell, Tony Carter, Dr. Paul Hutchison, Doug McKay, Dame Paula Rebstock, Bruce Turner; and Anne Urlwin, who is joining us remotely. Also at the table, we have Group Chief Executive, Simon MacKenzie; John Roger, who is Chief Legal and Assurance Officer and Company Secretary, but in addition, in the front couple rows, we have Vector's Chief Financial Officer, Jason Hollingworth; and external auditor, Graeme Edwards from KPMG. Now for a bit of overview on Vector. We see our role at Vector as navigating the complexities of the energy transition, whether that's by enabling the system changes needed for efficient and affordable decarbonization or boosting resilience against our rapidly changing climate. There is an urgent need for decarbonization, and this is the biggest challenge group but also presents a significant opportunity. We know that current and future energy needs cannot be met by the systems and solutions of the past. We need to do things differently, giving customers more choice, and this year, Vector has continued to go beyond the status quo. We've deployed a range of innovative solutions to support smart energy use, using digital technology through our strategic partnerships, driven by our team with the depth of skills and experience that we are immensely proud of. In these uncertain times we're thinking about the future of energy. So our consumers don't have to. With that overview, let's look at how the year went. We described this year 2023 ending June as having solid financial results. Given the sale of Vector meeting -- metering, we're presenting the results here as continuing, discontinued and combined operations. So you can see what the picture looks like with and without the Vector Metering component. We've seen strong performance across the portfolio with combined adjusted EBITDA of $523.3 million, up $13.3 million or 2.6% on last year's results. This is made up of $335.1 million from continuing operations and $188.2 million from discontinued operations. Total combined capital expenditure was a record $700.4 million, an increase of $154.5 million or 28.3% on the prior period. That's 2022. You can see there was an increase in both continuing and discontinued operations with ongoing investment in infrastructure to support Auckland's growth driving the continuing operations figure. While for discontinued operations, the investment is in the ongoing rollout of meters in Australia and 4G modem upgrades in New Zealand. Group net profit from continuing operations was $112.6 million, which was $10.1 million or 9.9% higher than the prior year. You can see here the impact of the Vector Metering transaction, which was in a one-off gain of sale of $1.51 billion feeding into net profit from discontinued operations of $1.6 billion and a combined net profit of $1.72 billion. By the way, as a former CFO, I love going through charts like that, probably less interesting for some of you, but anyway. Now for the dividend, the Board has determined that shareholders who receive an unimputed final dividend of $0.14 per share, comprising an ordinary dividend of $0.085 and a special dividend of $0.055 in recognition of the gain from the sale of 50% of the metering business. As we indicated at the interim results earlier this year, now that the metering transaction is concluded, the Board will review Vector's future dividend policy. The Board will do this after the release of the Commerce Commission's Input Methodologies review which is due in December of this year. The Board expects to announce any changes to the dividend policy along with the release of our FY '24 interim results in February next year 2024. Total shareholder return. This factors in capital gains on our share price as well as dividends paid and imputation credits attached to the dividends. And it compares, well, I wouldn't say hugely better, but well against the average across the NZX 50. When looking at the 5-year TSR, vectors outperformed the market and over a 10-year period is broadly in line with the market. The sale of a 50% interest in Vector Metering was completed on 30 June 2023, and as noted previously, resulted in a significant one-off gain. The proceeds have been used to repay debt with gearing falling to 33.1% and compared to a gearing of 58.2% at 30 June 2022. Some of the proceeds have been retained to repay wholesale bonds on maturity in March of 2024 and other debt. Now a year ago, we had questions and challenges about our gearing and balance sheet and I would say we are pleased to have made significant progress since that meeting. Standard & Poor's has recognized the improved Vector balance sheet by increasing our credit rating to BBB+ with a positive outlook that enables us to borrow money more cheaply. And with the successful conclusion of the Vector Metering transaction, Vector is positioned well for the future to support the decarbonization of the economy. However, regulatory settings must be changed to enable this level of investment required, and Simon will have more to say on the specific changes that are needed a bit later on. But to give you a sense of the investment that's needed, capital expenditure for the regulated network segment of Vector, which includes the electricity segment was $422.6 million while operating expenditure was $344 million. That's more than $1 million a day, does not come cheap. This reflects a continuing trend of year-on-year increases at levels we believe are at or near the highest of any single entity involved in the energy transition. This is important because New Zealand has a tendency to underspend on infrastructure and wait until it's too late. We have a lot of strengths here, but infrastructure isn't one of them. But Vector in its Auckland network is an exception. We've spent $2.3 billion over the past 8 years to ensure we have a reliable, resilient energy. And we need a good system for -- with good incentives for reinvestment to meet the decarbonization challenge in the coming years as demand for electricity continues to grow. Now a highlight from the year is then our ongoing work to challenge ourselves further refine and develop our understanding and disclosure of climate change risks and opportunities. And this is exemplified in our leading Task Force for Climate-related Disclosure report now in its third year of publication, companies are required to do this. We've been encouraged by the external feedback we've received on the maturity of our understanding and disclosure of climate risks and opportunities. According to this feedback, our report compares favorably with peer companies from New Zealand and it's in the upper quartile globally. We want to do something well. Activities to reduce our own emissions this year have included increasing the frequency of gas pipeline surveying for leaks from once every 2 years down to every year annually. This means we find and fix gas pipeline leaks faster, resulting in the reduction of emissions from those leaks. So one example how we're trying to improve. So finally, in my sort of initial sign off, in my final year as the Chair of the Vector Board, and I've been on the Board, gosh, 10.5 years. I'm pleased to step off as the Group continues to pursue its symphony strategy to deliver an affordable, reliable, electrified future. This is one where renewable energy is delivered efficiently and networks are optimized to reduce the need for large upgrades. And ultimately, where consumers will have more energy choices, including producing and selling their own renewable energy. Tony Carter also retires from the Board today. He has served since May of 2019 and also had an earlier stint on the Board. And my thanks go to Tony for his commitment and contribution during his time as a director. He has given me and the Board invaluable advice repeatedly. And I'd also like to thank Simon and his executive team and everyone else at Vector for their work during the year. It's been a big year for the group. You can see that actually on the slides, and we're very proud of what we've achieved. And with this being my last meeting, I'd also like to thank you, the shareholders, including our majority shareholder and trust and the investment community for their constructive challenge and support.

Thank you, Jonathan, and good afternoon, everyone. A major highlight from this year is, of course, the sale of 50% interest in Vector Metering and to QIC. We are proud of the growth of the metering business over 14 years and believe it to be one of New Zealand's success in the business story growth. It may not have been obvious more than a decade ago, how important smart meters would become. However, our forward-thinking strategy to establish and grow a highly successful metering business has proved the right call for Vector. This has been strongly validated by the success of sale of the 50% interest and in the financial outcome for Vector, which Jonathan has already spoken about. Backed by Vector and QIC, Vector Metering is well set to accelerate growth opportunities in a significant market and to continue providing data services for their customers to deliver innovative energy solutions. The transaction with QIC is also the latest example of Vector choosing to grow or partner with an external organization of high caliber as we've done with others such as Amazon Web Services and Google X. The new Vector Metering company has exclusive rights to use our industry-leading energy data platform called Diverge to provide metering data services in the New Zealand and Australian markets. This platform was developed under the strategic alliance between Vector Technology Solutions and Amazon Web Services, and ownership of the diverge platform stays with Vector Technology Services, 100% within the Vector Group. So the platform results from Australia show a material step-change and processing times, accuracy and delivery times with flexibility to add new products and services quickly. Vector Technology Services is continuing to take solutions to a market and explore specific new opportunities in response to emerging international demand for the types of solutions it provides. It's also contracted to a number of parties for the provision of new services, including the new separate Vector metering business as well as others. It provides managed cybersecurity services to 5 other electricity distribution businesses around New Zealand and in addition to Vector. We see this as sharing the expertise we've developed and encouraging an overall uplift in cybersecurity posture of the electricity distribution sector in New Zealand. Turning now to Cyclone Gabrielle. The electricity network performance was tracking within regulatory quality measures, but then in January, we saw a 1 in 250-year flood event on the Auckland anniversary weekend, followed by Cyclone Gabrielle just 2 weeks later, which was an event bigger than Cyclone Bola. After those severe weather events, one of our regulatory measures was breached, which was planned SAIDI, which stands for System Average Duration -- Interruption Duration Index. This measures how long customers are without power for. Our analysis shows that the majority of the SAIDI impact during Cyclone Gabrielle was caused by vegetation and a significant amount of this was from trees outside what's known as the designated cut zones, those zones in which we are legislatively able to cut. And this is in line with other severe weather events. Had the regulations being addressed as we've been calling for, for years now, we believe the impact on customers from these weather events would have been materially less. An example is in West Auckland, where we're currently going through the process to gain resource consent for tree work to improve reliability. This area was severely impacted during the cyclone, and yet we're still having extreme difficulty in securing consents to carry out the work. It's now urgent that these tree regulations get updated. Other electricity distributions who were also impacted by Cyclone Gabrielle have seen similar impacts on to respect to the SAIDI measures as we have. We're in discussion with the Commerce Commission over the appropriate consideration of these weather events. And what's important to note is that our cost for these events is around $7.4 million in operating expenditure and a further $9.2 million of capital expenditure incurred in just replacing and repairing the network, let alone what else we may need to do in the future. These events, the cost to us and more importantly, the impact on customers show the benefit of prior investments to improve resilience. For example, you can see on the screen, our Wairau substation during the flooding earlier this year. Our decision in 2012 to shift critical assets to a new building and elevate them above a 1 in 500-year flood level proved instrumental in minimizing the impact of that location. You can see the water level during the flood on this site almost up to the top of the fences, approximately 2 meters. Our assets are sitting above the water level line and the building shown on the right. And if the past 12 months of weather have shown us anything, it's that the forces of climate change are aggressively and repeatedly impacting our Auckland customers and our network. In our latest asset management plan, we're forecasting an approximate $270 million over the next 5 years, specifically targeted for reliability in climate change investment, and we have ongoing work underway to refine this further as we look ahead to the future severe weather events. It's a critical time to invest in the energy sector with demand for electricity set to grow strongly with electrification and as we've seen increasing demands for resilience in the face of climate change. The distribution sector regulatory settings set by the Commerce Commission are hugely important and must achieve the right balance of investment incentives to provide for resilience, affordability and customer requirements. Currently, they don't. We're doing our part by laying foundations for this on our own network that we can enable effective orchestration of load around peak times and to integrate more flexible, cost-effective solutions and to the demand growth of our customers and the challenges they present. As the country's largest electricity distributor, Vector absolutely wants to continue enabling electrification and doing it in the most affordable way possible for our customers. However, alongside other electricity network companies, we can only do so within the bounds of the strict regime that is set by the Commerce Commission, setting out returns in the funding. The Commerce Commission is currently developing a final decision over what's known as input methodologies, which are the key regulatory principles that will then bind the way electricity networks can operate and invest for the next 7 years. Regulated distribution networks cannot be the sole industry price shock absorber as proposed by some at this time of investment need across the energy sector. It is important that no part of the energy system is immune from scrutiny and sharing the affordability challenge, but it is so critical to invest now for more resilience and more long-term affordability, we will continue to strongly advocate for improved finance ability to create a sustainable investment pathway to enable decarbonization. So I'll now go over some of our operational performance of our reported segments. First, for regulated electricity and gas networks. Total new connections continued grow with electricity connections up 2.1% to 612,909 and gas connections up 1.4% to 119,631. Electricity volumes were up 2.3% at 8,552 gigawatt hours, driven by higher business demand. You've already heard about the amount of investment going into the network and why it's so critical that we continue to do this to support the electrification and growth of Auckland. For gas trading, earnings are up 23% on the prior year with increased margins on LPG and natural gas. Natural gas volumes were 1.9% higher while LPG volumes were down. For metering, Australia and New Zealand smart meter deployment programs both continued strongly with 89,000 meters deployed and billed in Australia and 26,000 in New Zealand. The advanced meter fleet stands at 2.09 million meters. The Australian meter fleet was successfully migrated to the new 5-minute segment market in line with regulatory time lines, which was an extremely complex process. So in closing, I'll talk briefly about the year ahead. We expect Auckland growth to continue, and we're anticipating around 14,000 new electricity connections in financial year '24. There is an ongoing need for a significant capital expenditure to support new connections and infrastructure as well as continue to factor in climate issues from a resilience perspective. The Commerce Commission's regime currently sets a cash return on assets of approximately 2.58%, which we see as insufficient to be able to invest in the future. We're in a critical decision-making period for the Commerce Commission and how they evolve regulatory settings to meet resilience and decarbonization challenges. Our guidance is for adjusted EBITDA of $350 million to $365 million in financial year '24, which excludes Vector Metering. I'd like to specifically thank all our staff and field service providers for their huge efforts this year not just in responding to extreme weather events in the early part of '23, but also for their work every day to deliver for our customers. I'd also like to recognize all the work that's gone on into the Vector Metering deal to make it such a successful outcome and to all our people and partners continuing to progress our symphony strategy. And I'd also like to acknowledge and thank Jonathan as this is not only his last meeting as Chairman, but also as a member of the Vector Board. So thank you, Jonathan, very much for all you've done for Vector, your strong contributions, challenges and leadership over the Board over the last 9 years and obviously, your chairmanship, so really appreciate that. And also like to personally acknowledge Tony for his second tour of duty with Vector and again, all this challenge and support. Thank you very much.

Thank you, Simon. The notice of meeting lists the item to be considered and the votes required today -- actually we only have 1 vote. Those eligible to vote may do so at any time as the voting is open. And for transparency, you will be shown the number of discretionary proxies held by me as Chair of the meeting or in my own name. I declare that it is my intention to vote the discretionary proxies in favor of the resolution. Only shareholders registered at 5 p.m. on Tuesday, 26 September 2023, last Tuesday, or their proxies or representatives may vote. If you become a shareholder in the last couple of days, you cannot vote at this meeting, but we do welcome your attendance. So the first agenda item is to invite questions to the Vector's Chair, Group Chief Executive and his team on the financial year ended 30 June 2023 contained in our annual report. So we ask the questions to be limited to our annual report. Any other questions, we're going to have a separate segment in general business, where you can ask any other question. So we published the annual report on 25 August 2023. Hard copy reports were sent to all shareholders who requested one. And so over to you. Are there any questions in respect to the annual report, the financial statements or the attached audit report for the year ended 30 June 2023. We'll start in the room. Are there any questions?

Thank you. For years, I've come to Vector meetings complaining and concerns about the infrastructure being maintained and the debt levels. Today, I come and praise. I very much liked the latest report. I felt that the attitude towards the maintenance of the infrastructure had changed for the better. I feel you're right on track and heading in the right direction for maintaining the essential monopoly services of a lines company, and I am very happy that you have reduced the debt after I challenged you last year. So I can now say I have absolute confidence that this company is in good hands.

That wasn't a question, but wow, that was just a wonderful statement there.

I could ask a question. Are you going to continue to reduce the debt?

Here's I describe that is, first, I noted in my talk that the wonderful interacting with you all has been a constructive challenge. I mean, occasionally, there's compliments. But gosh, we know when we're getting things wrong, too. And you challenged us and others on the debt levels. But you don't just have a single-minded goal to reduce debt. What we now have is a balance sheet that is very well positioned to support decarbonization. And it's just -- it's really demanding. That's big money. I mean I mentioned $700 million of CapEx, $335 million of OpEx that we get compensated for. So I'm not going to make, on behalf of the Board, any commitment on what future debt levels are going to be, but we're well positioned to support Auckland infrastructure. Thank you. Other questions? Yes.

[indiscernible], Shareholder. Congratulations for doing your climate-related disclosures 3 years. You didn't have to do the first 2 years, but now you do, so thank you for doing that. The question is who's auditing them? Are you using the same auditor as you use for your financial reports? Or are you using a specialized carbon auditor.

We're being audited by KPMG on those reports as well. And we reviewed their capability independent -- financial statements, TCFD are different, and we believe KPMG has huge expertise on climate as well. Any other questions from the floor on the annual statements on the financial statements. I don't think I see any. Now are there any questions from online?

No questions.

No questions from online. Great. So, there's no, there doesn't appear to be any further questions in relation to the financial statements.

So now we'll get to our resolution for the day, and that's the second item of business. And that's the appointment and remuneration of our external auditor. So just a little boiler plate language here. Section 207T of the Companies Act 1993, provides that a company's auditor is automatically reappointed unless there is a resolution or other reason for the auditor not to be reappointed. The company wishes KPMG to continue as its auditor, and KPMG has indicated its willingness to do so. Section 207S of the Company's Act 1993 provides that the fees and expenses of KPMG as auditor are to be fixed by the company at the annual meeting or in such a manner as the company determines at the annual meeting. The Board proposes that consistent with past practice, the auditor's fees should be fixed by directors. Are there any questions on the reappointment of the external auditor resolution? First, in the room. Second, online.

No questions.

Great. There appears to be no further questions. So moving on. We have a little bit of momentum now if you noticed. Yes. But we'll slow down for any question in general business. The proxy voting position for this resolution is shown on the screen. We now have finished all ordinary business. So over to general business, are there any other questions that you'd like to raise with the Board or management. And we'll start with those in the room.

Yes.

Sorry, [indiscernible] shareholder.

Oh, sorry, I pointed to you then, but they gave you the mic. So absolutely.

I'll continue.

Yes.

A question on smart metering. I was very excited like everybody else on my street. They've got a smart meter, mainly because I've got PV cells, so I'm generating power and exporting it. The problem was that the smart meters don't work because there's no 4G in our street. So why didn't the company check that first instead of outlaying all that CapEx? And that still hasn't been remediated.

Sorry, what's not on the street. I didn't...

4G. We don't have 4G in our streets. So there's no point putting smart meters there. They can't communicate. We still have people knocking on the door.

Simon, do you have any...

Yes. I think to be perfectly honest, I'm not 100% sure, it's very location specific. And it's obviously because we use -- in the metering world, they use cellular communications for the communications to the smart meters. So there are some pockets of Auckland, where there is some gaps in the world. The metering business actually started out on the 2G network, and we've been migrating over to 4G Long-Term Evolution. And most of the time, that's now -- if there is a problem with communication to a meter, then they can put like a booster on, booster aerials is the thing that they try as well. But obviously, I'm not too sure where you live, but there is a few pockets where there's poor comms.

[indiscernible].

Sure. Yes. Well, there is a few pockets around Auckland, yes, and certainly now of a couple of those. So other than the -- other than basically the cellular communications, there's not a lot of other options from a smart metering perspective. I mean, smart meter can be put in, but it just won't remotely communicate.

Yes. If you give your address to the service desk, we'll try to get you some more. We don't control everything. Smart metering is a broader benefit, but yes, take that. Yes. Other questions. Oh, yes, there's one down here. Yes.

I just had a question relating to the gas. So the long term, the gas will disappear. And do we have any plans to deal with that problem in the future? It might be a long time. And also, there will probably be government regulations.

Yes. So look, I'm going to start off, but I'm going to transfer to Simon with his more detailed knowledge is. So we -- I mean we support a couple of hundred thousand households with specific natural gas connections, and that has to continue. And so you have to have a transition plan that isn't too abrupt. And the government really has understood that. We've had multiple conversations with the government. So while gas will, I think, planned to be phased out by 2050, it's not imminent, and it's actually a pretty essential part of our energy supply system right now. We can't actually do without natural gas right now. So we're watching the transition very closely but are committed to a reliable, resilient natural gas network. Simon, any more detail?

No, I think you've captured it well. One of the things we have been working with the government and others in the industry is not only on how do we get an effective transition, but also recognizing that there are potential other gas solutions out there. So we've been looking at blended gases and the likes, but that's still very much in its infancy. I think the big issue for us is about how do we make sure we manage that transition. If we think about residential gas, that represents less than 1% of New Zealand's greenhouse gas emissions. So the kind of cost from a consumer perspective to migrate from gas to electricity, which is most likely the source is extremely expensive as well. So numbers show that could be between $15,000 and $20,000 per household to change appliances and to better retrofit. So that's something that we really minded to basically make sure that in the conversations with the government, there's that transition. And then we can't also just have that what we call gas load from a customer, whether it's heating or cooking, bounce straight on to electricity because that will just create another demand wave that has to be catered for investment in the electricity side.

And then unfortunately, it tends to be at the peak of our electricity demand.

Because that's usually cooking or heating. Yes.

Any other questions? Yes.

Good afternoon, Peter Musburger, shareholder. Please excuse my ignorance, but I'm -- I'd like to know a little more about how we are going to decarbonize other than phasing out natural gas. How do we reduce our -- whatever carbon, we're creating?

Again, I'm going to -- yes, I'm going to give a high-level description and then transfer over to the expert. New Zealand is going to have a devil of a time of meaningfully reducing the total carbon footprint, which is almost 50%, 48% in methane related to dairy, cows, lamb. And there isn't really any good technology. But for passenger transport, there is. There are EVs, solar power, wind power that are coming down in price all the time. So we can save of the total carbon we have emit with current technology about 30%. Now after that, new technology is going to be needed. But we're heavily in the 30%. And our vision is when residential consumers have the ability to get an EV at a lower cost, lower total cost of ownership than a petrol car, so lowering your energy cost, you have a battery in the driveway, you might have solar on the roof, battery in the house, you can buy and sell to the energy network. You'll have more choices, and it'll actually make -- actually, BCG, who just did a study 10 months ago, predicts that there will be lower energy costs coming out of that than what we have currently. So it's a partial answer to your question that 30%, we can reduce. That 70% that's harder, but we're actually in the 30%, if that makes sense.

Isn't that the retailer that's going to be decarbonizing rather than Vector?

Yes. So the retailer is the one -- we're not doing, we're not, I don't think we talked about our CapEx going out and doing wind farms, solar farms. What we're doing is your demand -- the projected demand with EVs for electricity is going up 40% to 50% in Auckland. If we don't invest, you won't be able to charge up your EV, there won't be enough capacity on the lines that bring you that renewable energy to your house from the retailers. So Vectors in a -- we're like the mailman, the mail person, in delivering your mail. And if there's no mail person, you don't get your mail. You don't get your electricity. So that's that. Yes. Simon, anything else on that?

I think you captured it well. I think for us, the big challenges is also the implications of the electrification of transport that we're seeking. It's about for us laying the foundations to be able to invest but also make it affordable on the transition. And so some of the areas there is very much around our investment and technology platforms that essentially mean that if there's a whole lot of people that have electric vehicles in the street rather than the more charging at the same time, then they get essentially managed and scheduled between, say, 9:00 and 10:00 at night and 6 in the morning, so that doesn't create a peak. And the peak is to impact. It has the impact on either having to build more network, which is going to be expensive or secondly, that flows through into a transmission system upgrade and then more generation coming on. So those are how we see our part in that transition. In Auckland, we're seeing electric vehicles. Proportionally, we have a much higher uptake of electric vehicles in Auckland than we see in other parts of the country. And so those are the problems that we not only looking to solve ourselves but with some of the strategic partnerships that we have.

Other questions?

Concerning electric vehicles and such like. Now Tesla, they have the big mega chargers and such like literally buildings or underground vaults full of batteries charging during the off-peak times for selling during the peak times. Now in Australia, that's becoming the main source in -- what is it self Australia, that is the main source. They've actually shut down all their coal mines, and they're purely relying on battery stuff coming in. Now I haven't heard any mention of that or I know of no big battery sub power stations in Auckland along the lines of a Tesla sort of mega charger comes whatever.

Simon, do you want to -- good -- we...

And the other question is [indiscernible]...

Yes sure.

Overseas, 2:00, 3:00, 4:00, 5:00 in the morning, the power companies are providing free power for electric vehicles. Any intentions there? And third question was from...

Just only 2, but okay.

Stable bay, which is the Penlink place. Do you have any intention of wiring through the Penlink bridge? Or is that bridge not likely to happen?

Okay. The third one, I have no idea on but we might have to answer that at our service desk after the meeting on the specific bridge. Simon, do you know or Peter?

Sorry, no. I'm not sure about -- obviously, from a perspective of when we're looking at projects such as tunnels or new motorways or bridge access, we're always involved early in those conversations with either Auckland Transport or other people that may be building them. And most of the time, we're actually putting assets to future proof our ability to put for example, cable ducts that mean that with the -- when the growth turns up in that area, then we can just push through cables as required rather than having to go back and retrofit it. A good example of that was what we're seeing with Warkwork. Now a lot of that was integrated with the motorway build from Wellsford and also around Warkworth, so all the updates in that area. So there's certainly the mode in which we like to operate, and that also takes into account anything from new subdivision developments. With respect to your question around batteries, probably a few things to note there. We actually were the first party in the southern hemisphere -- one of the first globally to put in large-scale batteries. And that was done in conjunction with Tesla, and that was at Glen Innes substation. The primary purpose there was to manage the peak demand that was occurring in Glen Innes and to defer capital expenditure, we could drop 15% of the peak demand by having the batteries charged and then disseminating that out rather than having to do an expensive upgrade. We've got around about 6 other large battery installations across Auckland. The South Australia battery project you mentioned, we had some insight and involvement in the early days with Tesla on there. The reality of that project is fundamentally more around -- obviously, batteries don't create energy in of themselves. So it's around storing the energy that's coming out of the renewable that the proliferation of renewable energy in South Australia from solar and wind and then storing that as there's an excess through the day and then releasing that at night. So batteries are seen very much as intraday or intraweek, so storage devices as opposed to long-term storage. So they kind of fit in that space of managing not only the excess from renewable generation, but also managing in some cases, they're putting now in places such as by wind farms and solar farms as shock absorbers because as the sun or clouds come over, then the output goes up and down. But by putting a battery and you can actually get a much more consistent flow of energy. So that's kind of how things are evolving. As for other battery developments, I think there's some people looking at some of those up in Northland and possibly some other areas. But they have a very specific kind of purpose and location, very important as well. So next to wind farm or next to a solar farm or how do you actually manage some deferral. With regards to free power, that would suggest as a call to your friendly retailer.

Other questions? Yes.

Chris Malcom, shareholder. You mentioned that EVs would add 40% to 50% to your, the load you had to cope with, that's only part of the story. What happens when you then include gas and all the other industrial fossil fuel usage. What does that figure rise to?

Simon?

So we actually do publish for those that are interested in our asset management plan. We run scenarios out to 2050, I think it was peak, that's right. And so when we look at that, if we look at our demand on our network now, essentially, our demand in megawatts, the units is around, let's say, 2,000 just for ease. So with regards to both electric vehicles and the gas transition out to 2050, under 1 scenario, that goes up to 6,000 megawatts. And under a controlled or what we call a managed environment, but by still delivering the outcomes customer needs, we can drop that to an expected around 4,000 megawatts, and that's by simply having the management devices to schedule the [ win-wins ] load is actually taken by customers. So it's not all occurring at once. So in a gas transition, you're probably talking, it's not as big as electric vehicles, but it's probably, let's say, electric vehicles represent 60% of the total increase when you back out the underlying growth then it's probably about 25%.

And just one other is over that period of time, 2050, another big driver is increased population of Auckland. Right.

Yes.

Supplementary question. So you're going to have to double or triple your investment in the infrastructure. Where is that money coming from?

Yes. Well, I mean I think that it's a really good point. I mean that's exactly why we make the point that the regulatory settings absolutely have to support that investment. It's one of the big debates at the moment. As it ends, we have to obviously be able to fund that level of investment. Obviously, that's out over that 3-year period. With regards to that, the regulatory cash flow settings have to support the what we call the credit rating matrix in particular, like FFO to debt ratios. And so we can fund that under the right regulatory settings. It's as it currently sits, we don't have the right regulatory settings. So then we have to actually look at what are the ways in which we can fund that growth or some of it whilst also recognizing that we think it's really important that we have an affordability and equity lens of that. So the 6,000 to 4,000 is saying we need to be enabled to invest to that 4,000 level, which is going to mean some enablement from regulatory and policy decisions to ensure that we can have, for want of a better word, communication with things such as electric vehicle chargers so we can manage not everything coming on at once. And then the second layer is that we also believe it's really important that where there are some large entities or other parties that might be wanting to build their own businesses, for example, electric vehicle charging that the cost is borne by them, and it's not basically socialized across everyone in Auckland. So there's a number of aspects there, which we've actually already put in place.

Yes.

I just want to ask if everyone plugged an EV into their garage power point at night and you had an old house with old wiring, apart from the fact that maybe you couldn't cope with the load, are there risks to the house itself?

Simon?

I think it's like anything, it's very case specific with regards to the house. I think it's -- we can -- the best we could do is say, if you're proposing to do that, you get electrician to do all the standard electrical tests, test your earthing, test diffusing and check the integrity of your switchboard in your house. There would be risks if those are not in good shape.

Yes. Got other questions? Okay. I don't see any other questions in the room. Are there any questions online?

No questions.

Online. Okay. I missed someone. Absolutely. Back to you.

David. Back on the topic of EVs. You said that the mass electrification of transport would necessitate a 40% increase in power demand. How are you going to make up for that capacity or just reliable capacity with just windmills, solar panels when you're decarbonating?

Okay. So this is -- now we're just the deliverers of electricity. And I think your question is actually more the generators of electricity. So that is a question for the gentailers. But I mean, the change, I mean, we look at this stuff because we want to be across the whole change. And there is substantial investment being planned for wind and solar. I mean, of course, we're starting with 80% renewables or something like it, close to it between our hydro, geothermal and a little bit of wind and solar. And when you think about the 140 to 150, so you have to go from 80 to 140. So that's sort of the math. There's quite an uplift, but there's -- the investment that's being planned is consistent with that uplift is what we're told. But we are not the experts. I'd direct you to [ Meridian ] to get their opinion. Because they're closer to that challenge. Other questions? Any other final questions in the room? I didn't want to like to skip over at all.

Michael Buczkowski, and I'm talking on behalf of my own shareholding, not Entrust. I'd like to seriously thank the Board and management with respect to this QIC metering transaction. I think it is a fantastic transaction vector. Vector is not struggling, but to get regulatory settings relative to those networks and what have you, especially if you're talking about climate change initiatives is -- and who is going to pay and so on is very, very difficult. So with that huge debt load and a dividend, which was reasonable, I think it was going to be a struggle, keeping on going with it. So it's a fantastic transaction. And so thank you to the Board and to management. But the reason I stood up is I'd like to thank Tony Carter with respect to changing the culture, the Board and -- but particularly Jonathan Mason, the 10-year or -- supporting that transaction when that particular metering in Australia was looked at as being sold a long time ago. For book value, this is a fantastic outcome for Vector for interest and all the shareholders, well done, Jonathan.

Thank you, Mike. And I just want to say like Simon has worked on metering. Gosh, he's been CEO since 2008. He built -- helped build with management that metering business and it was worth 400% more than what we put into it. So management has done a really nice job there, but really take your very kind comments on board. No further -- I don't think we're close to the end of the questions. And we're going to be around for an hour to answer any other questions you might have. So I'd like to shortly close the voting. Please ensure that you've cast your vote. And while we wait for a moment for the final votes to be cast, it's appropriate that I thank you all for your support of Vector, and I'd like to thank my fellow Board members for their input during the year and I just alluded to the contribution of Simon and the team over multiple years, but specifically this past year. And the result of this vote will be released to the stock exchange tomorrow, and I'll now close the voting and now declare the meeting closed. Thank you.