By MARK REYNOLDS
When the assets of the former Electricity Corporation were reshuffled into three competing power industry players earlier this year, one of the new companies was dealt what looked like an unplayable hand.
Genesis Power inherited a hotchpotch of assets, including the old and inefficient Huntly Power station, a developmental
wind farm near Wellington, an assortment of smaller hydro-power plants throughout the North Island and an incongruous bunch of retail power operations spread from Masterton to Taranaki.
But despite the apparent muddle of assets, Genesis is confidently winning new business in the competitive electricity generation and retailing market. Just three months since the baby-ECNZ was born, Genesis has increased its share of the electricity production market to 20 per cent, from about 15 per cent when it was separated from ECNZ on April 1.
But importantly, according to Genesis chief executive Murray Jackson, the increase in market share is being driven by greater efficiency and an increased focus on customer relations, rather than just running power stations hard.
"The company is extremely mindful of its cost of capital and the returns it needs to make to be prudent," Mr Jackson, a former Australian electricity industry reformer, said. "I think the process of separation [from ECNZ] has actually put a much larger focus on the return on assets and as a result we are extracting better value," he said.
Take, for example, the Huntly power station. Under ECNZ control, the coal and gas fired plant operated on average at about 20-30 per cent of its 1,000 megawatt capacity. Under Genesis' ownership, that has increased to 40 per cent of capacity, with a goal of 60 per cent.
Mr Jackson said the increased output has occurred without sacrificing earnings. "I think that previously, Huntly was simply switched on or off when ECNZ needed a bit of power to supplement production from its big hydro dams down south. Now we have been able to look at the station's capability to be efficient in its own right," he said.
Part of the process was recognising that Huntly was strategically important to getting power to the Auckland region, and could work in tandem with Genesis' hydro plants around the North Island, rather than simply being a back-up or peak production plant.
"We've also concentrated a lot more on efficiency issues like the costs of fuel," Mr Jackson said, noting that having a more regular output from the plant put the company in a better bargaining position for gas and coal.
Genesis is also planning Huntly's operations on an expected 40 year life for the facility, rather than the year-to-year planning under ECNZ. It has decided to replace by next March a transformer that exploded just before the ECNZ split, putting a quarter of the plant's capacity out of commission.
"The longer-term planning we can do now is helping the business focus. Staff now know there is a future with some of these assets where as in the past they were saddled with uncertainty," he said. Mr Jackson said staff development was a key part of the Genesis culture. That extends to having a target of 20 per cent trainees working for the company. "We have a responsibility to extend the skills of our staff and ultimately we can benefit from that greater experience," he said.
He also suggested Genesis had a responsibility to work with its customers to help them become more energy efficient. That could see some customers buying less electricity, but Mr Jackson's view is that it is better to work with customers that are efficient and competitive than ones that aren't. But he said the company was not going to be too benevolent. "We are still very focused on commercial disciplines."
Having said that, the performance targets set for Genesis by the Government are fairly generous. Its latest statement of corporate intent calls for a 4.9 per cent after-tax profit on shareholders funds for the financial year to the end of June 2000, and a 6.8 per cent pre-tax return on total assets. The company's assets were valued at $746 million at April 1. Those earnings requirements drop to 3.5 per cent and 4.8 per cent respectively the following year, though that will be impacted by an expected revaluation of the company's assets next April.
Mr Jackson said the company would be aiming to better those returns. "I think were already seeing that this company is performing better than expected."
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