Contact warns power supply threatened

By NZPA

Thursday 21st November 2002

Security of electricity supply was the critical issue facing New Zealand, Contact Energy said today as it reported a strong annual profit of $107 million.

Chief executive Steve Barrett said that supply was being threatened by dwindling gas supplies from the Maui field, and the need for gas to fuel thermal generation that acted as a crucial back-up in dry years.

New generation was needed by 2005, but Contact could not commit to building a new power station at Otahuhu until it secured long-term gas supplies, Mr Barrett said.

The $107 million result for the September 2002 year was at the top end of analysts' forecasts, but lower than last year's super profit of $131 million.

With one-off items removed, the underlying result was $117 million compared with the previous year's $126 million.

The company declared a final dividend of 15.4 cents, to be paid on December 20, taking total dividends for the year to 19.9c -- 10 percent higher than the previous year.

The share price rose 14c to $3.87 after the result was released to the market.

Mr Barrett said it was "imperative" the Pohokura and Kupe gas fields were brought on line as quickly as possible. Contact looked forward to contracting some of the gas.

Contact had approached Shell to discuss gas supply but was disappointed it had not had "more active discussions" with Shell up to now.

Mr Barrett said the final determination of the Maui reserves was expected late this year or early next year.

Contact's estimates assumed the ruling would reduce gas from Maui to less than 100 petajoules next year from about 175pj this year, and that there would not be enough for Methanex to continue to operate.

Mr Barrett said wholesale spot prices would remain "soft" through the summer, as the melting of above average snow flowed into hydro storage lakes.

Upbeat about Contact's result, Mr Barrett said the company's primary focus for growth was in New Zealand. However, Contact was interested in growth opportunities in Australia at suitable prices, if they provided a platform for Contact to become an integrated generator and retailer in that market.

Contact is seeking Commerce Commission clearance to bid for the 354 megawatt Taranaki Combined Cycle (TCC) power station near Stratford. It has also bid for generation assets of NRG Energy in Australia.

The gas supply contracts to 2010 attached to TCC are attractive to Contact and other bidders. Contact has not disclosed which station in Australia it has bid for, but it is believed to be the Flinders coal-fired power complex.

Mr Barrett said Contact was waiting for NRG to make a decision.

The key to Contact's strong result was the expanded retail base, enabling the company to match electricity revenue in the 2002 year with the 2001 year, when wholesale prices had soared during the dry winter.

It had 60,000 new customers in the year. "A large number of customers" had been won from Meridian and Genesis, Mr Barrett said.

Contact was now the biggest retailer with 450,000 customers and the biggest gas retailer with 105,000 customers.

In the September 2002 year, Contact's production was 86 percent spoken for through sales to its retail and business customers. Mr Barrett said he considered that 86 percent "hedge" optimal and expected a similar position this September 2003 year.

Contact has completed a three-yearly revaluation of its fixed generation assets, boosting total assets by $843 million to $3.35 billion, funded by about $2.5 billion of shareholders' funds.

With low debt levels, Contact had a strong enough balance sheet to fund both purchases -- TCC and an Australian power plant, he said.

Asked about the possibility of a return of capital to shareholders, Mr Barrett said if Contact was not successful with the two "opportunities" (TCC and NRG), it would be up to the board to look at that option.

Comments from our readers

No comments yet