No hint on capital return from Contact Energy AGM

Tuesday 15th October 2013

Contact Energy shareholders hoping for news of a capital return or increased dividends got slim pickings from the company's annual meeting in Christchurch, although chief executive Dennis Barnes had good news for customers, saying power prices were unlikely to rise anytime soon.

Chairman Grant King told shareholders at last year's annual meeting that an update on capital returns or dividend policy was about a year away as Contact came to the end of a $2 billion-plus capital investment programme in new electricity generation plant.

However, King's address today noted only an increase in final dividend, announced back in August, by 2 cents a share over last year's to bring annual dividends to 25 cents a share, or 91 percent of underlying earnings per share.

King and Barnes devoted space in their addresses to criticising the Labour and Green parties' promotion of electricity sector reforms that would replace current wholesale market arrangements with a government-appointed central buyer and a new way of calculating power prices based on the historic cost of generation from different power stations.

There were no immediate plans to build new power stations, thanks to flat demand growth and over-capacity, but King said it was important for a capital-intensive industry like electricity "to avoid creating an environment of uncertainty."

"We need to see a more bi-partisan policy environment," he said. "Proposals by the Labour and Green parties to introduce a single buyer policy do not provide a good basis for continued investment in the industry and it is Contact's opinion it is not the best way to achieve the industry's objective for a reliable, competitively priced supply of energy."

Barnes told shareholders current electricity market arrangements had allowed Contact to lead a "transition away from baseload gas to renewable geothermal generation, while ensuring we have retained the capability to provide thermal back-up to the volatility in hydro and wind generation."

"This is an example of how an efficient market works," said Barnes. "I do not believe that the Labour and Greens proposed NZ Power policy would operate in such an efficient manner."

"At best, we will just see a transfer of value from shareholders and the government to electricity customers and at worst a return to an unstable and inefficient electricity industry."

There were no international examples of such a policy being successfully implemented, and would transfer all the risks of over-investment in generation capacity, pricing volatility, and security of supply from private companies to New Zealand taxpayers.

"It is likely that with the current oversupply in the market and the continued intense competition, that we will not raise prices for the foreseeable future," Barnes said. He also indicated Contact remains content with having "very little gas contracted for 2015."

"With more renewable generation coming into the market, we believe that there will be less need for thermal generation under normal hydrology conditions," he said.

Contact shares were trading at $5.22, down 0.6 percent from yesterday's close, and 2.61 percent lower than a year ago, compared with a lift of 21 percent in the NZX 50 Index of leading stocks over the same period.

BusinessDesk.co.nz

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