Price rises coming, says Contact Energy

By CHRIS DANIELS, energy writer

Power price hikes of up to 20 per cent in the next few years have been predicted by Contact Energy chief executive Steve Barrett.

Announcing a $118.3 million profit for the past year, Barrett said the looming fuel shortage for thermal power stations, caused primarily by the rundown of the Maui natural gas field, would bring inevitable price increases to electricity users.

The latest profit result, up from the $107 million earned the year before, came from a company with "new maturity", said Barrett, one that was a very different firm from previous years.

Contact increased its generation capacity 20 per cent in the past year with the purchase of a modern gas- fired power station in Taranaki from NGC.

It is now the biggest power retailer after adding 135,000 customers during the year.

Contact burns natural gas in its Taranaki and Otahuhu B power stations. Because Maui gas is running out new fuel supplies are needed to fill a gap that Contact expects will emerge around 2010.

Barrett said a 40 per cent increase in prices on the wholesale "spot market" was likely over the next few years and Contact retail customers faced price rises of around 20 per cent.

Retail gas customers would likely face increases of between 5 and 10 per cent.

This does not necessarily mean big profits for Contact, though, as it is both a generator and retailer of electricity, working on both sides of the market.

Three-quarters of the power generated in Contact's stations is "bought back" by its retail arm. Another 15 per cent is committed in "hedge contracts", so the ability of Contact to make huge profits in times of high prices on the wholesale market is more limited than in previous years.

"Whereas our annual earnings were previously something of a rollercoaster ride, depending on the path of wholesale prices during wet and dry winters, we are now much less exposed to weather-induced wholesale price volatility."

Barrett refused to comment on recent reports that United States energy giant Edison Mission was looking at selling its 51 per cent stake in Contact.

Edison this week refused to comment on what it termed "market speculation" surrounding any sell-down reports, which have been prompted by debt problems at its US parent company.

Asked if he would support any future Government plan to privatise the three state-owned power companies - Meridian, Genesis and Mighty River Power - Barrett said it would be a good idea.

"I would certainly welcome the privatisation of those assets and having them be subject to the same commercial disciplines that a publicly traded company is subject to."

Asked if he thought the prices charged by these SOEs were too low, Barrett said yes.

"When we take a look at a cost comparison or a rates schedule comparison, their rates are below ours and we believe we're charging an appropriate and fair price for the electricity we sell to our customers."