Absence of rain, profit dampens

By RICHARD BRADDELL

Mighty River Power has blamed low rainfall for a full-year profit that fell below the target return on equity in its statement of corporate intent.

The state-owned enterprise, one of three generators created out of the old Electricity Corporation, yesterday reported a June year profit of $41.3 million, or 6.5 per cent of equity, compared with a forecast 7.9 per cent.

The company has paid the Government a full-year dividend of $20.6 million, equal to its minimum target of 50 per cent of earnings.

But while Mighty River was satisfied it had performed well in a newly competitive marketplace, it said it was constrained by the dependence of its nine Waikato River power stations on rainfall 8 per cent below average flowing into Lake Taupo.

This had limited its ability to take advantage of higher wholesale prices during commissioning problems at rival Contact Energy's Otahuhu B thermal station.

Mighty River's chief executive, Doug Heffernan, said the company was also limited by the relatively close match between its generation and retail customer demand.

Mighty River has a customer base of 250,000, bought when Mercury Energy was broken up, as well as 20,000 customers from First Electric.

Customer growth had been marginal, but Mr Heffernan was satisfied, given intense competition in the retail market and the large customer base with which the company began.

"We think we have done relatively well to have increased numbers," he said.

The accounts also give some indication of the costs of "out-of-the-money" hedge contracts arising from dramatically lower wholesale prices after the break-up of ECNZ.

While some in-the-money "vesting contracts" with ECNZ were offset, Mighty River still wrote off a net $829,000 on contracts that have around 10 years to run.

But the losses were crystallised in the sale price when the firm took over Mercury. With higher wholesale prices this year, the actual result was a small profit for Mighty River.