Contact Energy profits skyrocket

By CHRIS DANIELS energy writer

Profits at Contact Energy, the largest non-Government power company in New Zealand, have soared 63 per cent in the past six months, to $55.2 million.

News of the steep rise in profits was accompanied by a company pledge to start selling electricity in all parts of the country, becoming only the second power retailer (after state-owned Meridian) to do so.

Contact will soon start selling power in the King Country, Bay of Plenty, Marlborough, Waipa, central and southern Hawkes Bay, Wairoa, Buller and Westland.

The power company is making money on both sides of its business - generating electricity and selling it to customers. Revenue from wholesale electricity sales was down one-third to $209 million, but revenue from retail sales skyrocketed - nearly 160 per cent to $282.3 million.

Chief executive Steve Barrett said there were several factors behind the improvement in financial results, that far outweighed the impact of tariff increases.

Fuel prices were up and power prices also went up to "accommodate the cost of new generation" that was being added now and in the future.

"There are a number of reasons why prices are moving up and will be moving up in the future - but our result is not wholly due to retail price increases,"he said.

While several of the big five power companies - Contact, Genesis, Meridian, Mighty River and Trustpower - are present in most areas, they primarily compete with each other only for commercial or industrial customers.

Retail competition has dropped dramatically in the years since customers were first allowed to switch power suppliers in 1999. Each company has incumbent areas, with little competition over residential customers in other parts of the country.

Contact says it will actively be marketing in its new areas. It retains the Empower low-cost brand, which it has previously used in new markets.

The big power companies try to match their generation with demand from their own customers, seldom seeking to encroach on each other's territory.

Energy Minister Pete Hodgson seized on Contact's retail expansion as a way of reminding the other power companies that there was not enough competition.

In most of the new Contact regions, competition was "less than satisfactory", said Hodgson.

Proper competition required at least three retailers to be "actively competing" for business in any region, he said.

Another new area for Contact's retail operations is Australia, where its new Victorian venture was proceeding well, said Barrett.