Lost power puzzles Contact amid profit slump

By RICHARD BRADDELL utilities writer

Contact Energy is losing 4 per cent of the electricity it sells to customers and it wants to know why.

Yesterday it reported a $35.7 million net profit for the six months to March, down from $38.2 million in the same period last year.

But before tax and abnormals, which in the latest half included a $10.2 million gain from the sale of Whirinaki generation equipment to parent Edison Mission, the result would have been $34.7 million, down from $57.1 million previously.

After adjusting for non-recurring items, the net profit fell to $26 million.

Had the mysterious lost electricity been available, it may have contributed another $4 million pretax to profit.

Chief executive Steve Barrett said yesterday that an industry-wide effort was needed to resolve a problem that he thought was also affecting other retailers.

Contact expects about 6 per cent of the electricity it takes from national grid operator Transpower to disappear in transmission losses.

But while theft may account for a small portion of the other 4 per cent being lost, he said most was probably due to delays by other retailers in claiming new customers who had switched from Contact.

In those cases, Contact would continue supply but the customers would not be billed.

"If the other retailers don't claim the customers, we are the ones who have to stand for them," Mr Barrett said.

Explaining the result, he declined to give forecasts for the second half, but pointed to factors that might improve performance.

Among them was an explanation of wholesale gas supply arrangements, the impact of which has puzzled analysts.

While a contract with Methanex replacing other supply agreements had resulted in an $8 million drop in wholesale gas revenue, Contact expected a substantial improvement in profit margins in the second half as cheap prepaid gas from Maui Block B replaces more expensive base-load Maui gas that must be taken first.

Retail gas tariff rises would also counteract the impact of higher wholesale prices and increased network charges from UnitedNetworks that had been absorbed by Contact, he said.

Despite running Lake Hawea harder to boost hydro generation 20 per cent, Contact had been denied much of the benefit of wholesale electricity prices because of hedging arrangements that had conversely protected it from losses in the past.

The 60 per cent hedge would rise to 70 per cent during the winter months.

Retail tariff restructuring in coming months would help to restore eroding electricity margins.

In spite of the reduced profit, Contact has announced a 10 per cent higher, fully-imputed dividend of 5.5c, or 90 per cent of earnings.

Mr Barrett said the bottom line did not reflect Contact's strong cashflows which, at $70 million, were up from $47 million in the previous period.

Nevertheless, the bottom line suffered from an extra $100 million in balance sheet debt due to acquisitions in the past two years.

As a result, interest costs were up $7 million.

The new assets also contributed another $3 million to the depreciation charge.