Dry winter hits Contact result
"There was just so little rain into our catchment that we incurred an awful lot of costs." Contact Energy CEO Dennis Barnes
Contact Energy is hoping for more normal weather patterns in the coming year after a dry winter in the South Island hurt this year’s results.
The country’s second biggest electricity generator, and a major power retailer, was coasting along slightly ahead of last year’s performance until an 80-year low in the South Island lakes this winter forced it to crank up its more costly thermal power stations.
The company has posted a profit of $150 million for the year to June 30, well up on the previous year’s loss of $66m, although that was due largely to writedowns on the closure of an Auckland gas-fired plant.
However, the dry winter shaved 10 per cent off Contact’s underlying earnings, the company said yesterday.
Chief executive Dennis Barnes said this was the first time it had been caught out since the company switched its business model away from thermal generation to one more dependent on its hydro lakes four years ago.
‘‘In the last quarter there was just so little rain into our catchment that we incurred an awful lot of costs in gas and hedges, which we plan for – we just don’t know when it’s going to happen.’’
However, the company had continued to push ahead with cost-cutting and more customer-centric service.
Between 20 and 30 people had been cut from Contact’s Wellington head office over recent months, partly because of automation, Barnes said.
That meant it could free up one of its five floors, saving about half a million dollars, from later this year.
Contact had also reviewed the future of its Taranaki station but had decided to go ahead with its $50m refurbishment.
During the year, Contact also began to stem the tide of customer turnover or ‘‘churn’’, which Barnes put down to Contact’s switch to the AA Smartfuel rewards system, from Fly Buys earlier this year.
The AA’S discount gave more immediate rewards than Fly Buys, prompting about 50,000 people to switch power provider, he said.
Further down the track, he expected that Contact would be helping customers be more technologically self-sufficient.
‘‘I think in the long term there’s a slow transition to more control by customers – so solar panel, batteries, electric vehicles. But that will be a slow transition, and probably not for everybody.
‘‘So I think we’re in a good position, where we’re an efficient industry which is great for New Zealanders ‘cos it means efficient prices for electricity … And in our mind, the decarbonisation of New Zealand will actually come in a distributed fashion.’’
Craigs Investment Partners head of institutional research Grant Swanepoel said Contact’s result was as expected but shareholders were liking the transparency and strong focus on dividend policy, capital expenditure and costs.
‘‘So the stuff they have control over, they’ve given very strong, positive signalling on,’’ Swanepoel said.
‘‘[For] the stuff they don’t have contol over, like what their hydro inflows are, they have indicated there’s some headwind in the near term on that front.’’