Nat Gas eyes power plant

By Mark Reynolds

A reshaped Natural Gas Corporation is considering investing in the electricity generation sector as it looks to juggle a host of new assets in the energy industry.

The company yesterday reported a slight drop in core earnings for its June financial year, reflecting stiff competition in energy markets and the loss of a key gas suppply contract. Its basic earnings slipped 2 per cent to $45.5 million.

Overall results increased nearly 15 per cent to $60.1 million, but that was boosted by non-recurring gains of $14.7 million - being the net effect of the sale of a gas loan ($13.7 million profit), a gain on the sale of fixed assets ($2.8 million) and reorganisation costs of $1.7 million.

Chief executive Richard Bentley described the year as one of "unparalleled" change in the energy area, with his company forced to invest in other businesses to diversify its operations.

It invested $117 million in three main areas, comprising Hamilton-based WEL Energy's electricity retailing business, Powerco's gas customer base in Taranaki and a new liquefied petroleum gas wholesaling operation in association with the BP network of service stations.

Mr Bentley said trading conditions were harsh and the company would have to work hard to enjoy the benefits of these investments, especially as its competitors were also more diversified now.

One of those competitive changes saw Contact Energy acquire the retail operations of gas company Enerco, to which NGC previously supplied gas.

NGC has to find a market to replace that contract, and Mr Bentley said one solution might be to build or acquire gas-powered electricity generation plant. Such a move would also lessen the company's exposure to wholesale electricity markets, where it buys power to supply its retail customers.

The wholesale electricity market had been extremely volatile and would get tougher when Contact Energy fired up its new Otahuhu B plant, he said.

NGC has plenty of leverage to finance any move into generation, with assets of $1 billion and borrowings at $238 million.

Exactly what strategies NGC will take are likely to be decided with the help of its new majority shareholder, Australian Gas Light Company. AGL has just increased its holding to 72 per cent after buying a one-third stake from Fletcher Challenge.

Having Fletcher as an owner had constrained expansion because of monopoly concerns, while the new ownership structure gave NGC a lot more scope to be an integrated electricity and gas supply company, Mr Bentley said.

AGL is also a significant shareholder in Tauranga-based electricity retailing and generation group TrustPower and wants to work closely with that company.

If Natural Gas and TrustPower did work together then the two companies could supply about 330,000 energy customers nationwide.

Natural Gas also has a contract to provide customer management services for a further 155,000 customers of state-owned Genesis Power.

Yesterday's annual results announcement included a 2.5c a share special dividend for Natural Gas's 8000 shareholders, to be paid from the proceeds of the one-time gains. The company's ordinary dividend of 10c a share for the year was down 8.9 per cent from a year earlier.