Genesis Energy beats forecast with $69m profit

The Huntly Power Station, owned and operated by Genesis Energy. Photo / Amos Chapple

Genesis Energy reported a better than forecast net profit after tax for the year to June 30 of $69 million, thanks to favourable wholesale market hedge settlements and cost savings initiatives, chief executive Albert Brantley announced this morning.

The result compares directly with a $136 million loss last year, after the state-owned enterprise wrote down the value of its ageing Huntly coal and gas-fired plant, because it plans to run the station less in future.

Net profits in the 2008 and 2007 financial years were significantly higher than the latest result, at $99.1 million and $89.5 million respectively.

On an "underlying earnings" basis, stripping out one off factors, earnings this year were $88 million, compared with $82 million last year.

Reflecting a year of low wholesale electricity prices and wet, mild weather in which there was comparatively little call for its thermal generation units, the current result was achieved on reduced total revenue of $1.895 billion, compared with $1.957 billion in the previous financial year.

However, operating costs fell more, from $1.755 billion to $1.646 billion, allowing a 23 per cent gain in earnings before interest, tax, depreciation, amortisation and changes in fair value of financial instruments, at $249 million.

Thermal generation fell 8 per cent to 5,671 Gigawatt Hours, while generation from renewables rose 3 per cent to 1,815GWh.

A temporary gas glut also meant that Genesis used 32 Petajoules of gas (27PJ's the year before), rather than use coal, and the company is reviewing the size of its coal stockpile and coal import contracts. While an adequate coal stockpile was vital to ensure dry year generation capacity was available, the current stockpile of around 1.1 million tonnes was more than the company needed, Brantley said.

Genesis expects the gas over-supply to continue for another two to three years, and Brantley said it was experiencing difficulty getting gas supply contracts signed at new, lower rates in the Auckland market because of transmission capacity constraints.

However, Genesis still expected gas shortages by the end of the decade, with its own gas "book" declining sharply from 2017 onwards on current projections, and despite owning rights to all the gas from the Kupe oil and gas field, of which it owns 30 per cent.

Brantley intimated that price remains the outstanding negotiating point with Meridian Energy on the transfer of Meridian's Tekapo A and B stations to Genesis under last December's electricity reform package.

"There's probably not far to go," said Brantley at a briefing in Wellington. "We have by and large agreed all the technical terms. We are just now in the final stages of commercial discussions."

While Genesis had deliberately shed some of the 32,421 retail customers it lost last year, it had gained around 6000 in the South Island, was targeting another 9000 now. It expected to have 20,000 southern customers by the end of this calendar year, reflecting the reforms, which force greater national retail competition.

Genesis would eventually want between 60,000 and 70,000 customers in the South Island.

Looking ahead, Brantley said the company was confident of meeting profit targets published in its Statement of Corporate Intent.