Electricity firms have mixed fortunes

Taxpayer-owned power generators have reported mixed half-year profits, feeling the effects of last year's dry winter and accounting charges.

Biggest of the SOEs and usual star performer Meridian Energy has reported an interim loss of $20.5 million, due to two large unrealised charges. The underlying profit before the charges of $85 million in the six months to December 31 was down from $99.9 million for the corresponding period last year.

Accounting rules require non-cash movements in the fair value of financial instruments, such as electricity and financial derivatives, to be recorded in the profit and loss statement.

That meant that an unrealised loss on electricity derivatives of $55.9 million relating to a pricing agreement with New Zealand Aluminium Smelters at Tiwai Pt went through the profit and loss statement along with an unrealised loss of $49.7 million on interest rate derivatives.

Mighty River Power reported its best six-month operating result ever with revenue up from $578 million to $741 million as it profited from a full Waikato River hydro system and new geothermal power at a time when South Island generators still suffered from low lake levels.

Its bottom line was hit by a $121 million accounting charge due to fair value movements on interest rate derivatives which saw net profit fall to $30.7 million compared with $83 million in the prior period.

Genesis Energy - whose main assets are gas and coal-fired power stations at Huntly - reported underlying profit of $43 million, up from $31 million in the same period a year earlier.

Huntly was run hard during the first part of the interim period but then wound back as national hydro storage recovered and wholesale prices fell. The company says that while renewable energy fell and wholesale prices were restricted, expenses and the cost of sales were reduced.

Meridian says earnings are improving and ahead of target due to an unprecedented inflow into its hydro lakes.

Chief financial officer Neal Barclay said the NZ Aluminium Smelters contract was "massive", and the contract revaluation resulted from a comparison of the pricing in the contract with what was expected to happen in the wholesale electricity market.

"It doesn't take much of a change in the underlying assumptions, given the size and nature of the contract, to actually drive what would look on the face of it to be a significant valuation loss, or gain for that matter," Barclay said. "We're still very happy with the contract."

The company was also caught out by having to buy power on the spot market for its residential customers.

Earnings before interest, tax, depreciation, amortisation and financial instruments (ebitdaf) for the residential segment were a loss of $23.6 million compared with a profit of $69.8 million a year earlier. Spot prices in July and August were more than double those of the previous year.

Mighty River chief executive Doug Heffernan said the company could not guarantee the big sales jump it enjoyed over the past six months would continue in the short term.

"We had a real bonus with the timing of the water inflow into the Waikato relative to the South Island - it will be a challenge for us to sustain that sort of level."

National grid operator Transpower made an operating profit of $67.5 million in the period, excluding one-off revaluations, up from $53.3 million.

- NZPA