Power income doubled

By CHRIS DANIELS energy writer

In the midst of a nationwide energy saving campaign, Contact Energy yesterday found itself in the awkward position of explaining why its earnings from selling wholesale electricity had nearly doubled in the past six months.

Chief executive Steve Barrett announced a healthy $34 million profit for the half-year to the end of March, up 13 per cent from the same period the year before, with money earned from selling wholesale electricity well up.

While the headline news from yesterday's results was Contact's decision to invest $100 million in a new power station, Barrett spoke of a deepening concern at where future gas supplies would come from.

Contact expects to need new gas supplies to replace those from the dwindling Maui gas field by 2005 or 2007.

This gas is sold at the wholesale and retail level but, more importantly, used to generate electricity in its thermal power stations at Otahuhu, New Plymouth and Stratford.

Uncertainty over gas supplies means the company has chosen to install generators that can run on oil distillates, as well as gas, for a possible $100 million station at Otahuhu, which it hopes to have ready by next winter. Contact is also considering a station at Whirinaki, near Napier, which would run on oil distillates only.

Wholesale electricity revenue soared by nearly 90 per cent - with the company earning an average price of $63.37 a megawatt hour, compared with $38.58 a megawatt hour for the same period the year before.

Increased generation at the New Plymouth station, and the inclusion of one month of the recently purchased combined cycle plant at Stratford, meant a 14 per cent increase in total power generated.

The retail arm of Contact's operations made a good contribution to the half-year results, price hikes and more customers increasing sales by 41 per cent.

The company was gaining 1000 new customers a week, but Barrett said he expected this rate of growth to slow as retail competition increased. The increase in customers is mainly coming through Contact's budget Empower brand.

Such competition is eating into Contact's retail gas business, with a 12 per cent drop in the volume of gas sold and the loss of 2000 gas customers since the first quarter. Revenue from gas sales was down 4 per cent, as Barrett said "tariff adjustments" had largely made up for the loss in volume.

In May last year, Mercury Energy, the retail brand of state-owned power company Mighty River Power, began wooing Contact customers with the offer of both gas and electricity on the same account.

For the year ahead, Barrett said Contact was concentrating on two main issues - "managing the impact of current political focus on the industry" and securing future fuel supplies for its power stations.

When it came to earning money from its planned new back-up station, Barrett said potential Government changes to the wholesale power market could have a big impact.

"Contact's current view is that the risk of intervention is high - the critical issue will be the nature of that intervention and its impact."

On the looming gas shortage he noted: "The company has expressed on a number of occasions its frustration with the lack of urgency associated with the development of new gas supplies."