Contact’s profit leaps 61pc on higher prices

Good times keep on rolling for Contact Energy shareholders, as higher power prices and a national squeeze on generation lifted the company's half-year profits by 61 per cent.

However, Contact - the second- biggest company on the stock exchange - is warning that new investment will be jeopardised by Government intervention.

Chief executive Steve Barrett said Contact's "integrated business model" had proved successful again.

Average wholesale electricity prices increased, so revenue earned from its power stations was up, by nearly 60 per cent in the last quarter.

On the other side of its ledger, where Contact sells electricity bought on the wholesale market to its retail customers, revenue was only up slightly, to $289 million, from $282 million last year.

Contact has also been able to win over some new retail customers in the past six months, increasing by 4000 in the past quarter, taking total numbers to 513,000.

But these customers have all been hit by recent tariff rises, which Contact says has taken prices "closer to levels needed to support the cost of new generation".

It was not just electricity sales earning the big bucks for Contact, though, with revenue from its sales of natural gas rising by 27 per cent to $77.8 million. This was due to a combination of recent price rises to its retail customers and bigger sales to its wholesale gas customers.

Investors responded well to yesterday's news, with Contact shares rising 17c to finish the week at $7.12.

Barrett, due to retire as CEO in September, issued a warning against increased Government intervention in the energy sector.

He said the "market-led" parts of the energy sector were working increasingly well, responding to price signals. They appeared capable of delivering security of supply "as long as they are allowed to continue working".

"While Contact is actively pursuing investment opportunities in generation plant and fuel sources, we continue to be concerned about the regulatory environment."

He said under-investment in the national transmission system was a particular cause of concern.

The Electricity Commissioner, Roy Hemmingway, is now investigating whether Transpower's plans for a big new power link through the Waikato, connecting to Contact's Otahuhu B power station, should go ahead.

Transpower says the new link is crucial to bring power into the expanding Auckland area. Without it, says Transpower, Auckland will soon be subjected to power blackouts.

"Contact would regard any attempt to compensate for this failure by moving towards central planning of generation alternatives to transmission as a serious backwards step that could compromise New Zealand's ability to secure necessary investment."

Contact is changing its financial year to run from the start of July to the end of June. Its 2004-2005 financial year will be for a nine-month period through to June 30 this year, with a September dividend payment to be paid for that nine-month period.

After that, the cycle of dividend payouts will change, with an interim dividend paid in March and a final payout in September.