Spark chairman takes aim at govt intervention

Spark Infrastructure chairman Doug McTaggart has taken aim at the "continual stream of reviews, regulatory change and government interventions" in the energy sector that has put at risk the electricity network owner's track record of delivering long-term stable returns to shareholders.

Mr McTaggart told the annual shareholders meeting on Wednesday that the company has been "disappointed" by many of the changes and interventions, "which in our view has led to a deterioration in the quality of the regulatory environment and decision making", just when networks businesses are central to the transition to cleaner energy.

Chief executive Rick Francis echoed those concerns, saying the "short-term, manufactured" reductions in prices for consumers as a result of the interventions had only added uncertainty and risk to the regulatory framework.

Mr McTaggart noted that at the same time, the lower interest rate environment and lower-for-longer inflation outlook put pressure on returns from Spark's businesses, which include electricity grids in Victoria and South Australia as well as a stake in NSW high-voltage grid owner TransGrid.

Mr McTaggart said the trend had prompted Spark to move from a focus centring on yield to one that also includes growth in order to still meet shareholders' expectations on value. That drove the move into renewable energy, with Spark's first investment in this area, the Bomen solar farm in NSW, due to start commercial operations this quarter.

Spark reconfirmed its guidance for shareholder dividends for 2020 of at least 13.5 cents per share, including 7 cents in the first half and at least 6.5 cents in the second half. It has previously advised of reduced regulatory returns in the next regulatory period for its distribution businesses, which colours the outlook for dividends.

The comments come amid a toughened-up regulatory environment for assets such as electricity and gas networks that have guaranteed returns, putting pressure on how much they will yield for their owners in the years ahead. Earlier this month, electricity grid owner AusNet Services advised of a shock cut to the dividend payout for shareholders next year of about 10 per cent, citing regulatory tariff settings as well as the impact of COVID-19.

Mr McTaggart also confirmed that Spark had decided against pre-empting the sale of a 15 per cent stake in TransGrid by a partner in the company because of a "disconnect" between the values being attributed to that business and those of its distribution networks.

As reported by The Australian Financial Review's Street Talk column, Canadian pension giant OMERS has agreed to buy the stake in TransGrid that is currently held by Kuwait's Wren House Infrastructure Management in a deal potentially worth $2 billion or more including debt. Spark and the other partners in TransGrid had the right to pre-empt the sale by matching the price, but all declined.

Mr McTaggart told shareholders that Spark had spent a lot of time evaluating the deal but ultimately decided against pre-empting.

He pointed to TransGrid's "compelling" pipeline of growth projects in both the regulated and unregulated space, which seems to be attracting the same multiple in the market's valuation of Spark as its distribution networks which have more mature growth profiles.

Mr McTaggart said that misses the sizeable value of "once-in-a-generation" growth opportunities for TransGrid related to the expansion of Australia's electricity grid and the connection of new renewables projects.

Mr Francis said Spark still had the financial capability to invest in growth opportunities in TransGrid, pointing to a $400 million three-year corporate loan that the company took out in February.

"All our businesses' balance sheets remain strong and are well-placed to withstand the inevitable pressures emanating from the COVID-19 pandemic," Mr Francis said.