Genesis benefits from the exodus

By RICHARD BRADDELL utilities writer

Natural Gas Corporation's disastrous foray into the retail electricity market is at an end with an agreement yesterday to sell its remaining 290,000 customers to state-owned Genesis Energy.

A month ago, NGC's retail subsidiary, On Energy, sold its entire 116,000-strong South Island customer base to generator Meridian Energy, also state-owned.

Shortly before, NGC admitted it would lose around $300 million from writing down its customer value as well as from energy trading losses.

On Energy, then New Zealand's largest electricity retailer, was bleeding high spot market prices and unhedged supply commitments.

As a result, parent Australian Gas Light was forced to provide up to $277 million in short-term funding to cover obligations to the governing body, NZ Electricity Market, and meet short-term cashflow needs.

The corporation declined interviews yesterday, but chief executive John Barton said in a statement that the sale to Genesis was not likely to result in further losses.

Around 100,000 of the second tranche of On Energy customers to be sold are Aucklanders. NGC said the only difference they would notice was that the name on their bill would change to Genesis in coming months.

NGC will retain its electricity generation assets and its 105,000 industrial, commercial and residential gas consumers in the North Island.

Genesis and NGC will form an alliance to provide a dual-fuel option to new and existing customers, and NGC's gas customers will be supported from Genesis' back office.

Genesis chief executive Murray Jackson said this would let the company provide businesses and households with an integrated service covering gas, electricity, toll calls and the internet.

The deal is subject to fulfilment of certain conditions before completion next Wednesday.

But it is a perfect fit for Genesis which, with 1600MW of generating capacity, produces three times more electricity than NGC. Upon completion, Genesis will have 450,000 retail electricity customers.

NGC's exit from electricity retailing is the final humiliation in an ill-judged venture that began last year when it spent $830 million acquiring 76 per cent of TransAlta NZ.

Infratil, a utilities investor which owned 6.7 per cent of NGC, fiercely opposed the deal out of concern at the price paid and the risk from the investment.

Infratil three weeks ago won a landmark arbitration under the Companies Act in which NGC was forced to add $10.6 million to $34.6 million it had already paid after Infratil demanded a buyback of the NGC shares it owned.