AGL lowers outlook on NGC pain

AGL, which yesterday halted its shares in anticipation of a downgrade by its 66%-owned kiwi subsidiary, is now warning its own full-year operating profit will fall by around 10% compared with last year's A$249 million result.

On top of this AGL says it expects an abnormal write-down of A$160 million as a result of write-downs on NGC's electricity business, On Energy.

AGL managing director, Greg Martin, says the circumstances surrounding the New Zealand operations troubles are unprecedented.

"NGC has had to deal with abnormally high wholesale electricity prices, problems in the hedge, spot and retail electricity markets, the unplanned sale of a retail business and the need to restructure existing generation contracts.

"These actions have been forced upon NGC by serious imperfections in the operation and structure of the New Zealand electricity market.

"NGC has sought an investigation by the Independent Market Surveillance Committee of the New Zealand Electricity Market into the operation of the market. The Committee is currently holding hearings on this matter."

The hearings could be key to deciding whether the electricity market reforms in New Zealand need to be reviewed again.

At issue is whether claims of fair competition in the industry is valid given that companies with net generation capacity can ensure their own retailing arms are looked after and then make a bundle on the open wholesale market.

In recent weeks the cost of wholesale power has risen from around $35 per megawatthour to over $200.

AGL, which has two million energy customers in Australia, says its trading position there is robust and it has adequate supply arrangements in place to meet the needs of both gas and electricity customers in all of the states in which it trades.

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