Mighty River Power chairwoman Joan Withers has defended the decision to raise the company's dividend policy.

The state-owned power company's board decided late last year to lift the proportion of adjusted net profit after tax it would pay out in dividends from 75 per cent to between 90-110 per cent.

The adjusted net profit backs out from the reported bottom line any gains and losses when risk-managing financial instruments are marked to market, and any impairments, as in the last half-year when it wrote down overseas investments by around $90 million.

Whenever deciding on dividends, the directors looked at the company's capital requirements at the time, Withers told Parliament's commerce committee yesterday, and it was committed to retaining its investment-grade BBB+ credit rating.


"But the imperative is, if we don't have value-enhancing projects for the capital, then the right thing to do is to return it to the shareholder."

The company had invested heavily in new generation over the past few years, including the $484 million 82mW Ngatamariki geothermal plant due to start generating this year. However, demand for electricity is flat.

"So we don't see any near-term imperative to invest any further in domestic generation," she said.

In response to a question from Labour MP David Clark, Withers rejected the idea that after the float, because the company would have shareholders in places other than New Zealand, it might have different imperatives in terms of a willingness to invest in more generation. "Projects are going to have to stack up financially. We do this now as an SOE. It won't be any different, I'm sure, for future boards."

Chief executive Doug Heffernan took issue with the implication that a change in the ownership of Mighty River Power would have any implications for security of supply.

"We would have been the largest builder of generation plant over the past four or five years. That's because we could see financial and economic returns out of doing that, not to be the saviour of security of supply to New Zealand."

The company was already required to perform as if it were not owned by the Crown, he said, and the market model in place since deregulation had proven extremely successful.

Electricity supply is much more secure now than it was under central planning in 1992, he said.