Contact to go ahead with power plant plans

Contact Energy chief executive Steve Barrett says the company sees gas-fired generation as an essential part of New Zealand's energy future. Picture / Mark Mitchell

Renewed confidence in the future of gas supplies for thermal power stations has buoyed Contact Energy, which says it is moving ahead on its plans for a South Auckland power station.

Announcing a profit rise of 37 per cent yesterday, Contact said options for importing gas and local exploration meant it was happy proceeding with plans for new generation.

The company reported financial results for nine months because it has changed its financial year to end on June 30 to match its new 51 per cent shareholder, Australia's Origin Energy.

Surging profits have come from higher wholesale prices - which means more money flowing into Contact's generation arm. It also means prices rise for its retail customers, who last year were hit with average 6 per cent increases in power bills.

But as New Zealand's second-largest listed company, with market capitalisation of $4.37 billion, Contact's dividend policy is watched as closely as the power bills it mails out.

The Contact board has just finished a review of its dividend policy and reaffirmed its target of paying an average of 80 per cent of its net profit.

Shares in Contact yesterday came down from a pre-result rally on Tuesday when they went up more than 2 per cent. They finished the day down 11c at $7.60, with large numbers of shares changing hands.

Contact shares hit a high of $8 early last month. Some analysts had been expecting profit results even higher than the 37 per cent increase.

Yesterday's results were a change from the often gloomy warnings of looming fuel supply shortages coming from Contact, which relies on natural gas for its stations. Despite a yet-to-be finalised gas contract, work is under way on what would be the best configuration for a new station at Otahuhu, costing between $300 million and $400 million.

"We continue to see gas-fired generation as an essential part of New Zealand's energy future," said chief executive Steve Barrett. Otahuhu C was "the best major gas-fired addition to New Zealand's generation fleet".

Returning to his native United States next month, Barrett took the opportunity to praise the market structure of the energy system.

"I really believe the market can deliver the best, long-term, lower-cost opportunities for New Zealanders," he said.

"If anything, I would say don't abandon what you've got here. Continue to tune it and make it the best you can."