Lack of rain dampens Mighty River's efforts

By RICHARD BRADDELL ultilities writer

Higher wholesale electricity prices were not enough to save Mercury Energy's owner Mighty River Power from an 18 per cent drop in net profit to $30.4 million for the six months ended December 2000.

Wholesale prices were high because of problems at rival Contact Energy's Otahuhu B thermal plant, but Mighty River lost the benefit of the hedge contracts that added $8.1 million to its result in the previous first half.

Even without that, the $6.8 million drop in net profit might well have been avoided had generation on its nine Waikato River dams been up to par during what is usually its most profitable time of year. Instead, poor rainfall for the second year in a row constrained output.

Chief executive Dr Doug Heffernan said the result meant that for the second year running Mighty River was at risk of missing the rate of return specified in its statement of corporate intent.

"If we had had good rainfall, that would have offset the reduction in the vesting [ECNZ] hedges," Dr Heffernan said.

"Since December 28 the inflows have been normal and it is the first time in two years that we have had two months of good inflow conditions," he said.

No interim dividend will be paid, in accordance with Mighty River's statement of corporate intent. This requires the company to build equity to 50 per cent of its total assets over three years.

Dr Heffernan said the underlying performance of the company was best represented by operating cashflow of $57.5 million, which was $5 million higher than that of the previous first half.

But a $67 million rise in sales to $301 million appears to have been of cold comfort for the company because of the squeeze on its profit margins.

Dr Heffernan said the cost of adding a further 18,000 retail energy customers, for a total of 284,000, had been minimal since Mighty River had not gone in for expensive marketing.