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Contact Energy trading hampered by North-South imbalance

Tuesday 23rd September 2008

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Contact Energy, the biggest utility on the NZX 50 Index, said constraints on the Cook Strait cable and low hydro-lake levels in the South Island are continuing to hamper trading.

With the majority of Contact's generating capacity based in the North Island, the company has been forced to buy electricity at spot market prices to deliver on its contracts in the South Island.

"This has resulted in performance for the first two months of the current financial year being well below expectations," chief executive David Baldwin said in the company's annual report, released to the stock exchange today. That's likely to continue "until either transmission constraints ease, South Island demand eases as temperatures rise, or South Island hydro inflows and storage levels increase," he said.

Baldwin's comments reiterate his view when releasing the company's annual results last month. Profit fell 1.1% last year to NZ$237 million, partly reflecting the imbalance of supply in the North and South islands. The shares fell 0.7% to NZ$8.64 today, trimming their gain the past month to about 3%.

The Electricity Commission is holding a conference this week on who should pay for the upgrade of the capacity of the HVDC link across Cook Strait.

By Jonathan Underhill

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