Profit warning from Natural Gas

By Phil Boeyen, ShareChat Business News Editor

Friday 8th June 2001

Higher wholesale electricity prices are hurting Natural Gas (NZSE: NCH) so badly that the company says it is unlikely to report a profit for the second half of the year.

The company says the no-profit scenario compares with a $31 million profit for the first half of the year to the end of December.

NGC says wholesale electricity prices have risen to unprecedented levels since late May, with current year average prices are the highest since the wholesale electricity market was established.

"The underlying causes of the higher prices are drought conditions in the South Island, generators' response to a shortage of hydro generation, transmission constraints and unreliability of thermal generation over the last few months," the company says.

Although the company has had some protection from the high prices thanks to its own generating ability, it say losses incurred as a result of the prevailing very high prices have had a significant downward effect on current period earnings.

"NGC's current exposure to the wholesale market is a direct result of the lack of sufficient generator hedge contracts on offer since late last year and the recent bidding behaviour of generators."

The company is calling the current electricity retailing environment "extremely difficult", but adds that other activities are trading successfully, including its gas business.

NGC owns the On Energy retail brand, previously named TransAlta. TransAlta was one of the worst hit retailers in terms of customers leaving for other suppliers, and it is likely that promoting the new brand will be relatively costly.

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