Soaring prices claim another victim

By PAULA OLIVER

Soaring winter electricity prices forced TrustPower to issue a profit warning late yesterday - the second from an electricity company in days, and hot on the heels of news that some customers will soon be paying more for power.

TrustPower, the country's fourth-largest energy retailer, said drought conditions would halve its projected September half-year profit.

TrustPower made a first-half profit of $16.9 million last year, making the current period's estimate close to $8.5 million.

The company said it had been forced to buy electricity on the volatile spot market - where prices are going through the roof - because low water levels had led it to rein in hydo-electric generation.

Analysts said, however, that TrustPower's problems were minuscule compared with those of NGC, a competitor.

NGC said yesterday that its retail arm, On Energy, had been forced to put residential and small-business power prices up.

From July 1, On Energy will increase its variable rates by 2c a unit - the equivalent of 50c a day for the average residential customer. The changes will take effect from July 16 in the Waikato.

NGC said it would pass on a fall in prices immediately to customers.

Since issuing a profit warning a week ago blaming exposure to spiking wholesale electricity prices, NGC's share price has fallen.

Analysts predict half-year losses of up to $7 million.

The decision to raise prices was seen as a "desperate" move by Ian Graham, of broker Forsyth Barr, who said it would not stem the daily losses at NGC.

"They will still be losing money at the new rates. It is not sustainable and there is no reason why prices won't stay up for another month or two."

Mr Graham estimated that NGC, 66 per cent owned by Australia's AGL and 10.2 per cent by the Hutt Mana Energy Trust, was losing as much as $1 million a day.

NGC's move to increase its prices could backfire if customers elect to walk away to other retailers.

Competitors Contact Energy and Meridian Energy, which both carry much larger generation capacity, would see the chance to hold their own prices and snare some of NGC's customers.

"I'd be surprised if Contact and Meridian went up. There's a chance to forgo short-term profit for longer-term gain here," Mr Graham said.

Market analysts suggested that NGC was too aggressive when it chased and paid for retail customers. It now found itself carrying a lot of debt, and faced the added burden of a potential flight of customers.

NGC's woes have highlighted the difficulties of companies focused on retailing, where margins are always extremely tight, and lacking strong generation capacity.

"It was never really viable," Mr Graham said. "It was very aggressive management on behalf of NGC to pay what they did for customers, and in the process they misaligned themselves with demand and supply."

NGC would have benefitted from hedging months ago when prices were at much lower levels, he said.