Mighty takes blow to profit

BY JAMES WEIR
Last updated 05:00 23/02/2010

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State-owned Mighty River Power profits were down in the half year because of lower inflows into the Waikato river catchment and low wholesale electricity prices, but it is gaining retail customers.

The company owns nine power stations on the Waikato River, geothermal plants in the North Island and the Southdown co-generation station. It owns the retail business Mercury Energy.

Mercury Energy has now hit 400,000 customers, gaining 18,000 customers in the past six months.

The battle for new customers was "the most aggressive" it had been in the decade since electricity market deregulation, Mighty River chief executive Doug Heffernan said.

Underlying profit, excluding one-offs, was $85.5 million, down from an exceptional profit of $121 million in the previous corresponding half year, because of high wholesale power prices and Mighty River's high generation levels. Mighty River said the latest six months were a "solid, business as usual" result. The net profit after tax of $73.9m was up from $30.7m last year when the company had a $118.8m charge for a change in the fair value of derivative financial instruments, which mostly related to interest rates.

Mighty River expected strong retail customer growth to continue and a boost from the early commissioning of its new Nga Awa Purua geothermal station to help revenues in the second half of the year.

But operating costs were also rising because of increased efforts in gaining retail market share. Mercury won most of its new customers in the South Island, and they should be adding to profits within two years "if not earlier", Mr Heffernan said.

Earlier on, most of the new customers were from Contact Energy, which had lost significant market share, he said. More recently, Genesis had lost market share, while Contact had been picking up customers again.

"In Christchurch and Dunedin (Mercury) just being there was a big change," he said, and that helped win over new customers from Contact. Mercury moved into those markets at the end of 2008.

Contact Energy recently announced it would lift prices for most customers by 5 per cent. Mercury planned to lift prices about 3 per cent from April, after holding prices for the previous year. The increase also included a component of higher lines charges.

Mercury's sales to retail customers were almost 1400 gigawatt hours in the half year, up about 5 per cent from the previous year. Sales to commercial customers were up about 20 per cent.

Mighty River's hydro power production was down significantly in the past six months compared with the previous period, falling by more than more than 500 gigawatt hours to 2075 Gwh in the period.

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But 2008 was an "extraordinary period" with high hydro production, and the latest period was more like levels seen two years ago, Mr Heffernan said.

Wholesale electricity prices were also well down on 2008, with an average of almost $53 a megawatt hour, down from about $71 in the previous period. But again, the latest period had prices more like those in 2007.

Overall, generation revenue was down on the previous six months because of low wholesale power market prices as a result of high South Island lake storage levels.

Production from the new 140MW Nga Awa Purua, a joint venture with the Tauhara North No 2 Trust, was also expected to contribute to earnings in the last quarter and is already supplying some power to the national grid. The station would "displace" more expensive gas and coal-fired plants.

- © Fairfax NZ News

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