Focus on prices and profit at powercos

By CHRIS DANIELS, energy writer

Falling demand and steady rain in the South Island have sent wholesale electricity prices to their lowest this year, as the last of the big power companies prepares to announce its annual profits.

Wholesale power market operator M-Co said its price index dropped to just 2.19c a kilowatt hour on October 24. However, conditions since then had pushed the price higher.

Demand for electricity was slightly higher last month than in October last year, at 99.3 gigawatt hours, up from 99.1.

The decline in wholesale prices comes as Contact Energy gets ready to reveal its financial performance for the past year. Analysts predict a net profit of $100 million to $121 million.

Contact's latest quarterly results released in July showed an after-tax profit of $74.1 million, up from $70.4 million the year before.

Last year, Contact made a full-year after-tax profit of $106.9 million, down from the previous year's $130.7 million.

Latest research from retail sharebroker Forsyth Barr claims that Contact's three Government-owned competitors, Meridian, Genesis and Mighty River Power, are undervaluing their generation assets.

"As a consequence, this allows them to offer discounted retail tariffs.

"We believe revaluations are required to provide a level playing field in the retail market, which will remove some of the competitive pressure faced by Contact and Trustpower."

Forsyth Barr says that despite the big increase in profits for the past year, returns for the industry are still below acceptable levels.

"Calls for regulation due to perceived excess profitability have little merit."

It says retail tariffs are too low and price increases are needed.

Contact and Trustpower, the two biggest private sector power companies, are "not competing on a level playing field with the three SOE electricity companies".

A presentation to investors last week from listed investment company Infratil said the SOE power companies were overinvesting in uneconomic generation capacity.

Infratil owns 35.2 per cent of the Tauranga-based power generator and retailer Trustpower. Latest half-year profits at Trustpower were up more than 37 per cent from the same period the year before.

* Edison Mission, the US energy company that owns 51 per cent of Contact Energy, yesterday said it would make no comment on reports it is preparing to sell its stake in the company. A spokeswoman for senior vice-president Bob Driscoll said Edison had a policy of not commenting on market speculation.

Driscoll was more forthcoming in May, when he said Edison Mission had "no plans or interest in selling our equity stake in Contact Energy".

"Edison Mission Energy is very pleased with its investment in Contact Energy. We have been pleased with our investment since we made it."

Driscoll said he felt "like a broken record" denying reports of a Contact sale.