NGC drops retail power

By Phil Boeyen, ShareChat Business News Editor

Wednesday 25th July 2001

Natural Gas (NZSE: NCH) is getting out of electricity retailing altogether.

The energy company has announced it is selling its 290,000 North Island commercial and residential electricity customers to state-owned Genesis Energy, with effect from the start of August.

"This agreement, following the recent sale of South Island customers to Meridian Energy, means that NGC, operating under the On energy brand, is withdrawing from the electricity retailing market," says MD John Barton.

Mr Barton has not said how much Genesis is paying for the North Island customer base, but he doesn't expect the sale will result in any further asset writedowns.

NGC says the sale will close off its retail exposure to the wholesale electricity market but it would retain the majority of the businesses acquired from TransAlta New Zealand last year.

The company will also keep its electricity generation assets and its natural gas customer base of approximately 100,000 industrial, commercial and residential gas users throughout the North Island.

Mr Barton says the company has also agreed to acquire Genesis' electricity meters and provide meter services to Genesis for its residential electricity customers.

"A strategic marketing alliance is being formed with Genesis to offer dual fuel and joint promotions to the retail market, under the Genesis brand, for gas and electricity products to existing and new customers.

"We believe that the core gas business of gas transmission, distribution, wholesaling, and sales to industrial customers, combined with the electricity generation and the strategic alliance for gas retail, creates a very sound business for NGC going forwards."

John Barton has sounded a final rejoinder about the electricity market in New Zealand, claiming the way the hedge market and spot markets are functioning means the risks for a net retailer are unacceptable.

He says a basic intention of the electricity market development is to encourage retail competition, but this is not being achieved and the company is not confident that the wholesale electricity market will ever provide an environment for net retailers to compete effectively.

The government is coming under continued pressure to review recent electricity market reforms, which were supposed to provide consumers with a choice of retail suppliers.

However in some parts of the country consumers now have little if any choice of supply.

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