Contact Energy's earnings up $99m

Contact Energy reported bumper profits yesterday but warned that that will be as good as it gets.

The profitable combination of a dry year and the last of the cheap gas from the Maui field helped it to post a $99 million increase in net earnings to $281 million in the year to June.

The bottom line was also boosted by a $33 million profit on the disposal of an Australian offshoot, Contact Peaker, and by an $8.7 million gain, before tax, in the revaluation of some financial instruments as required by new accounting rules.

Chief executive David Baldwin said that even the $60 million lift in underlying net earnings, when those items are excluded, reflected a combination of factors unlikely to be repeated.

Low hydro lake levels during the year meant more gas-fired generation than normal, which coincided with the last year that low-cost gas from the Maui field would be available under long-standing contracts.

Contact used 38 per cent more gas last year than in the 2004/05 year.

Baldwin said wholesale gas prices would rise about 25 per cent in the year ahead.

Wholesale electricity prices almost doubled, but Contact, as a vertically integrated generator and retailer, is on both sides of the wholesale market. And only 83 per cent of the electricity it generated was needed for its retail customers and to honour hedge contracts.

Retail electricity prices rose 4 per cent and Baldwin indicated retail gas customers could expect some increase in tariffs as the company had to pay more not only for gas, but for transmission and distribution charges.

Looking forward, Contact is short of gas not only for new generation, like a plant it has consents for at Otahuhu C, but for its existing gas-fired plants beyond 2010.

Baldwin said the company was increasingly confident it would be able to secure additional gas.

"The focus remains on obtaining competitive prices and acceptable commercial terms."

It would be buying gas from the Pohokura field this year, and was interested in the additional supplies being made available from Maui.

"The object is to secure competitively priced gas on favourable terms, given that the market appears to be oversupplied short term," he said.

But "as a prudent risk management strategy", it would continue to investigate importing liquefied natural gas, together with Genesis.

Any decision on whether to proceed to construction of [an LNG] import terminal "will be delayed as long as possible to allow future domestic gas discoveries to come to market".

There was no drop-dead date by which a decision whether to proceed with the LNG option had to be made.

Contact is also pursuing geothermal and wind-generation options.

But Baldwin said its resource consents to the Wairakei field were under appeal and there was risk that the full potential of the resource - another 200-300MW - might not be realised.

Contact has formed an alliance with the international investment bank Investec, which has rights to six or seven potential wind farm sites in New Zealand. It is also in talks with another player, as well as doing its own work on wind generation.

The abortive merger with its major shareholder, Origin, had cost $8.6 million.

Contact will pay a fully imputed final dividend of 16c a share, taking the full-year payout to 26c, or 62 per cent of normalised profits.

Shares in Contact dropped 21c to $6.74 yesterday.