Contact staying at home

By CHRIS DANIELS

Electricity generator and retailer Contact Energy's Australian expansion dreams are over, despite a 22 per cent leap in annual profits in the past year.

The financial result reported yesterday by New Zealand's second largest listed company was the first since Australian energy giant Origin Energy took control.

Origin bought 51 per cent of the company from Edison Mission Energy in July.

Contact said it would pay a final dividend of 8c a share, making 25c for the year or nearly 100 per cent of profits.

The full effect of Australian majority ownership is yet to be felt, but it is clear that plans to expand across the Tasman have been shelved.

Because New Zealand generation plans are constrained by a lack of fuel and electricity retailing has been sewn up by the big five power companies, Australia was seen as a green pasture for expansion.

Chief executive Steven Barrett said that "for a variety of reasons" Contact had decided that its focus would now be on the New Zealand market.

"Contact does not rule out investment in Australia," he said.

"However it will no longer pursue development of an integrated business in that market."

The company has sold Red Energy, the electricity retailer it set up in Victoria, because it competes with Origin.

An integrated business in Australia would have looked much like Contact here - lots of generating assets and lots of retail assets.

The two sides of the business would have balanced each other.

When wholesale prices were high, profits would have come from the generating.

When wholesale prices were low, profits would have come from selling the cheaper power to consumers.

Contact still owns some generating assets in Australia - 40 per cent of a power station near Melbourne and 25 per cent of a coal-fired plant near Brisbane.

Barrett said no decisions had been made on the future of other Australian assets.

Another sign of the influence of the new majority owner is Contact's pending shift from a September 30 financial year to June 30 - like Origin. It will continue to publish unaudited quarterly results.

Barrett was questioned yesterday about comments by Keith Turner, chief executive of state-owned Meridian, New Zealand's largest power generator.

Turner said importing liquefied natural gas (LNG) would take New Zealand back to the dark ages.

He criticised Contact for its advertising campaign designed to "soften up" the public for LNG imports to fuel its thermal power stations.

Barrett responded: "There will be some development of wind and other renewables, but we find it difficult to see that that can meet all the requirements as well as replace some of the thermal supplies."

Barrett said Contact's preference was to use domestic natural gas, should it be developed in time and in quantity.

Higher charges to consumers helped lift Contact's profit.

The company's average prices to its 508,000 electricity customers rose by 12 per cent.

Barrett said he thought future increases would be moderate.

Prices would keep increasing, but the rises would not be as "aggressive" as in the past few years.

Contact lost about 3 per cent of its retail electricity customers to rivals last year, but sold more power.