Genesis Energy back to profit on Tekapo assets, higher power prices

BUSINESSDESK: Genesis Energy returned to profit in the year to June 30, with earnings of $90 million after a $17 million loss in the previous year.

A full year's earnings from its Tekapo A and B hydro stations, acquired from Meridian Energy part-way through the previous year, and higher wholesale electricity prices were the primary factors driving the result, although the previous year also included a one-off $67.8 million non-cash revaluation loss.

Despite the improvement, and a $100 million, or 34%, increase in earnings before interest, tax, depreciation, amortisation and the fair value of financial instruments to $393 million, Genesis will continue to not pay a dividend, in line with the policy adopted when it was required to buy the Tekapo assets under government-driven electricity reforms.

It expects to return to paying dividends in the current financial year.

The company also revealed it has had to set aside $125 million for repairs on the Tekapo canal, which has produced new leaks. With increased focus on seismic risk in the Canterbury region, "the current risk of progressive canal failure is considered in excess of normally accepted levels".

However, canal repairs are the only substantial capital expenditure on Genesis's books. Like the rest of the sector, the company sees no short term prospect of building new generation capacity, since national electricity demand has been static for about five years.

Genesis remained "open to opportunities for partnerships" in various future generation options on its books, including windfarms in the Wairarapa and Southland regions.

With new renewable generation projects due to come on stream, Genesis is on track to retire one of the four ageing 250 Megawatt gas and coal-fired units at its Huntly power station, with plans to put a second unit in mothballs in late 2013.

During the year, the company also deliberately burnt more coal at Huntly to reduce stockpiles and improve its balance sheet during a year in which more thermal generation was required to make up shortfalls caused by low rainfall in South Island hydro catchments.

Some 28.7 petajoules of coal were burnt during the year, up 154% from the 11.3PJ's consumed a year earlier, and coal stockpiles fell 31% to 1.1 kilotonnes. Natural gas used for electricity generation reflected this shift, falling 17.4% to 23.1PJ's during the year.

The latest result was achieved on total revenue of $2.27 billion, up 24%, with Tekapo the "main driver of increased ebitdaf", with operating earnings from the energy management segment rising from $177 million the previous year to $277 million in the year under review.

While average wholesale electricity prices were higher, that had impacts on both the revenue and expenses sides of the ledger, as Genesis buys from the wholesale market to service its 548,356 electricity customers.

Total customer numbers at 668,684 were static, with small falls in electricity and gas customers offset by 45 percent growth in LPG customers to 7,610, as Genesis ramps up this market, thanks to its share of LPG from its 31% holding in the Kupe oil and gas field.

Chief executive Albert Brantley drew attention to what he says is consistent ebitdaf growth in the last two years, with "wholesale prices a less significant driver than in 2008 and 2009", reflecting returns from Kupe and Tekapo, which was driving more consistency between first and second half results than in the past.


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