A combination of low wholesale electricity prices, low growth in demand for electricity and gas, and the impact of one-off outages to upgrade canals in the Tekapo hydro scheme saw operating earnings at Genesis Energy fall 13 per cent to $336 million in the year to June 30.
The result was achieved on a 9 per cent drop in revenue to $2.1 billion, not quite offset by an 8 per cent decline in operating expenses at $1.7 billion.
Net profit after tax improved from a restated $86 million in the prior year to $105 million, but the increase was largely attributable to lower depreciation and depletion charges, lower interest costs, a $30 million positive movement in non-cash changes in the fair value of financial instruments, and the benefits of an insurance settlement relating to Kupe oil and gas field infrastructure.
Earnings before interest, tax, depreciation, amortisation and financial instrument movements - the best guide to underlying earnings trends - was $336 million, compared with $387 million.
Some $20 million to $25 million of the reduction was thanks to the unavailability of the Tekapo hydro assets during an extended outage to allow planned maintenance, with the second phase of the maintenance project scheduled in the current financial year. The company says this phase is unlikely to be as long and therefore will have less impact on earnings.
Genesis was also unlucky because the Tekapo outage coincided with high hydro inflows, leading to some 220 Gigawatt hours of water being spilled from the Tekapo scheme.
Meanwhile, drought conditions in the North Island reduced the company's ability to generate electricity from its Tongariro hydro assets, while low wholesale electricity prices made it uneconomic to generate using its Huntly coal and gas-fired power stations.
"For the first time since Tekapo acquisition, Genesis Energy's own generation was less than retail load," the company disclosed, with the shortfall bought on the wholesale electricity market instead.
However, the result was shored up by continued strong earnings from the Kupe oil and gas field, a 3 per cent increase in total customer numbers and lower rates of customer churn than industry averages.
It also paid a full year dividend for the first time since 2009, reflecting its purchase of the Tekapo hydro-electricity assets from Meridian Energy in electricity reforms announced in 2010. Total dividends for the year were $114 million, representing a 5.6 per cent return on assets valued at $2.1 billion, and the company says it expects to pay the same or better in the current financial year.
With an eye to the potential for partial privatisation before the 2014 election, Genesis says "the company will pay a dividend that provides shareholders with a consistent, reliable and attractive return, even in periods of business cycle downturn."
The smallest state-owned electricity company by assets, Genesis remains the largest by customer numbers, with electricity, gas and LPG customers rising by 3 per cent over the year to a total of 668,485.
The company has been rolling out smart meters and innovating with new products to allow customers greater control over their energy use, and reported lower than average industry churn at 16.2 per cent.
Growth in LPG customers was especially strong, up 22 per cent to 9,708, but pressure on electricity and gas retail margins saw "under-recovery" of increased national grid and local monopoly network transmission charges contribute to the suppressed earnings result.
From its 31 per cent share of the Kupe oil and gas field, Genesis reported EBITDAF earnings of $109 million, up from $95 million in the previous year, despite its share of gas sales falling 5 per cent to 5.6 Petajoules, and its oil sales share falling 4 per cent to 509,000 barrels.
The company continues to assess the future of the Huntly thermal generation assets, with plans to put a second unit of its ageing 1,000 Megawatt plant into mothballs at the end of next year.
It also said it continued to explore with its partners the potential to drill new wells to extend the life of the Kupe field.