Contact is expected to announce within the next two weeks a huge profit for the year to September, based on the extraordinarily high prices on the electricity spot market over winter. Contact, which generates its power mainly from thermal stations, was not hampered by the low levels of hydro storage lakes during winter.
Mr Driscoll said a good winter did not mean that high prices were here to stay, nor that Contact had suddenly become worth so much more.
"Prices are clearly going to cool off from the average that we have seen in 2001. How far they go is a matter of competitive struggle."
Despite a good year this year, Contact was still a "price taker" in the electricity market, with the prices set by the big hydro generators when they decided how much water they wanted to use.
Mr Driscoll said it was strange that New Zealand market analysts thought the offer of $3.85 a share was too low.
"We've done a considerable amount of analysis on Contact and done a lot of work to understand the forward wholesale energy market in New Zealand. That is our bread and butter; it's what we do for a living.
"I just find it curious that in the industry, the brokers were consistently valuing the company in the $3.40 to the $3.50 range until quite recently, but now it's all of a sudden worth 40c to 50c more than as recently as a few weeks ago."
Local analysts James Miller, of ABN Amro, and Peter Sigley, of JBWere, both took umbrage at Mr Driscoll's assessment, saying the market was waiting for Contact's annual results.
Most analysts had already signalled an improved value for the company, which was about to announce a spectacular profit and high dividend payout.
Mr Miller said it was incorrect for Mr Driscoll to say that the market had only just decided Contact was worth more than the $3.85 offered by Edison.
He pointed to an ABN Amro report written in July, after the electricity market surveillance committee asked industry players what they thought the long-term marginal cost of power would be.
The consensus was that it would be around $48 per megawatt hour.
"Therefore, we believe their views will help form a benchmark for the industry. If we assume that the market moved to this price immediately and it increased with inflation, our valuation of CEN [Contact] would increase from $3.46 to $4.52," said the report.
Mr Miller said the high dividends expected to be paid by Contact in the next few years were another factor that made it worth more than Edison was offering.
"Contact will be the best dividend story in the market," he said.
"Telecom was the best dividend story of the 90s, Contact will be the best story for the next 10 years, no question."
Substantially higher volumes of Contact shares have been traded during the past week.
* The share price has ranged between $3.95 and $3.98 since Edison's October 12 offer.
Edison paid $5 a share when it bought a 40 per cent cornerstone shareholding in 1999.
In May, it paid $3.10 a share to lift its stake to 51 per cent.
Power to the People Supplement
Energy Efficiency and Conservation Authority
