Genesis clears the books of Huntly's leadweight

Wednesday 14th October 2009

Genesis Energy has reported a full year loss of $136 million after writing down by $183 million the value of its Huntly Power Station and warning that the 1,000MW plant will only be available for national energy security purposes if it can pay its way.

The result for the year to June 30 represents a turnaround of more than $200 million on the previous year's $99 million profit. Genesis also provided its own calculation of underlying earnings of $82 million by adding back revaluations, impairments and the after-tax net loss, a substantial fall from underlying earnings of around $140 million the year before.

The state-owned enterprise also missed every one of its targets in last year's Statement of Corporate Intent, and is laying the groundwork for a period of significant change in corporate strategy.

The company will pay no final dividend to the Government, unlike Meridian and MightyRiverPower, which declared special dividends of $150 million each on top of normal dividends for the last financial year.

Rates of return on investment of below 2% for the next two years were also labelled unacceptable, and were the focus of longer term plans to improve the commercial performance of the country's largest electricity retailer, without relying on ever higher power price increases to achieve that.

"Any reasonable person would be unhappy" with current rates of return, chief executive Albert Brantley said. "We're concentrating on the longer term: how we replace high cost generation with more competitive generation capabilities.

"We have to reshape the company over the long term."

The result was achieved on reduced total generation of 8046 Gigwatt hours in the June year, compared with 9126GWh in the year to June 2008, entirely because Huntly ran less as Genesis sought to limit its use and to cut Time of Use electricity sales to major commercial users to stem the under-performance caused by Huntly.

The ageing four unit Huntly plant has been a bedrock element of national security of supply during the four winter power supply scares that have occurred in the last seven years, but it has been running at commercially unacceptable rates of return.

Substantially lower average wholesale electricity prices also played their part in the result, at $67.82 per MWh, compared with $115.13 per MWh in the prior year. Genesis also lost around 12,000 customers during the year, and is bringing its call centre in-house to chase both budget efficiencies and greater alignment with Genesis's approximately 680,000 customers.

While the future of Huntly was uncertain - it could run as little as 25% of the time, compared with above 50% in recent times - Brantley announced today that Meridian has entered into a long term hedge contract that relies on Huntly's availability, on commercial terms acceptable to Genesis.

That contract may cause some upward revaluation of the Huntly station, as could other such arrangements to ensure the plant's availability to ensure security of electricity supply.

The introduction of a scarcity pricing regime, as proposed by the Technical Advisory Group onelectricity market reform, would give Genesis a further level of comfort on future availability of Huntly, although Brantley declined to discuss any details of the TAG review process, which is at a crucial stage.

On options for investment in new generation, Brantley outlined consideration to boost its 40MW fast-start peaker plant at Huntly to a combined cycle plant capable of generating up to 100MW, or to build a 480MW ccgt plant at its recently resource consented site at Rodney, north of Auckland.

Genesis would be looking for at least 15 years' firm gas supply before committing to the Rodney scheme, but gas for an upgraded Huntly peaker could be more flexibly managed. The company is also taking measurements of the wind resource at two Wairarapa sites.

Businesswire.co.nz

Comments from our readers

No comments yet