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Power Pack

Friday 22nd August 2003

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PowerCo - a provincial lines company a little over a decade ago, New Plymouth-based Powerco has had exceptional growth. It has mushroomed into an energy leader nationally, an NZX top-50 company, and established an offshore presence.

Its top rating was accompanied by descriptions such as "innovator" and "ambitious" by others in the sector. It is New Zealand's largest gas distribution company (46% market share) and second largest electricity distribution company.

"We're the one [distribution] company that has made some decisions about growth," Powerco chief executive Steve Boulton says.

The company has had a merger or acquisition every year for the past 10 years, all of them successful. Last year's acquisition of United Networks' assets for $825 million, for example, was fully integrated within Powerco in three months.

Powerco's consumer connections have more than trebled in the past three years. The company is now serving nearly 400,000 consumers. Total revenue for 2003 was $228.3 million, up from $163.1 million in 2002, and the company is forecasting revenues of $312 million for 2004.

It has two main areas of operation. The asset management business is responsible for asset planning and acquisition, while the energy services business maintains both Powerco's and other companies' assets (lines, pipes, poles and generators). Australian subsidiary Powerco Holding, with revenues of $NZ18 million, maintains assets on the other side of the Tasman.

Productivity improvements and improved economies of scale have enabled Powerco to keep line charges nominally flat since 1997, which translates into a 16% decrease in real terms ­ although retailers have in most cases failed to pass those savings on to consumers.

This month it began the first stage of a $35 million investment in Tasmania, where Powerco competed against Australia's major players to win the right to provide gas to 100,000 consumers throughout the state.

Orion New Zealand

People have a certain view of what a lines company should do, suggests Rob Jamieson, commercial manager at electricity distribution company Orion. "And we don't do it." Industry insiders see Orion as "very clever," "well prepared" and "high potential with close ties to exciting new energy technologies."

Mr Jamieson believes Orion's desire to do things differently has been key to its success. It uses a simpler pricing model than its rivals, based on wholesale data rather than consumer meters.

"Congestion signals" (price increases at peak times) help customers minimise unnecessary spend and enable Orion to manage scarce resources. It was named EECA Energy Supplier of the Year in 2002 in recognition of its resource management skills.

Orion focuses on developing new possibilities through changing technology. It has invested in distributed generation technology: it owns 47% of New Zealand developed Whisper Tech, which recently made a $4 million sale of 400 generation units to Powergen in the UK.

Distributed generation is like the shift to personal computers from main frames ­ micro generators are placed in people's homes making them independent of large-scale generators.

"It's a challenge, it's going to happen, so we might as well be positive and supportive," Mr Jamieson says.

"We see our business model changing over time from poles and wires with power flowing in one direction to power flowing in multiple directions as people start generating electricity in their homes."

Since the corporatisation of the former Southpower in 1993, Orion has returned nearly $700 million to shareholders in dividends and capital repatriation. Orion's net surplus after tax for the last financial year was $29.9 million


Windflow Technology

New Zealand is the windiest country in the world when measured according to wind resource near population centres, Windflow Technology executive director Geoff Henderson says. Windflow has pioneered local manufacturing of wind turbines. Previously they were all imported, mostly from Denmark.

Executives in the industry say that instead of energy infrastructure being a drain on resources, it could be a major earner. Windflow's turbine offers weight and cost reductions of 20-50% over others of similar power rating. This has been achieved despite difficulties in obtaining financial backing. Two years ago, having "wasted a lot of time" trying to interest investors within the industry, Mr Henderson raised $2.6 million from 470 shareholders.

Windflow's first working windmill, linked into the national grid in July, has been established in Christchurch. The city council has contracted to take all the power generated by the turbine, which will meet 3% of the council's electricity needs.

Mr Henderson says, with more than 130 megawatts of generation planned to come on stream in the next year or so, the country will be more than halfway toward a viable market.

This year it will build 10 windmills; in four years' time, annual production will reach 60. Windflow is also establishing a wind farm subsidiary, which it intends to build to at least 60 turbines.


Energy Intellect

This company has come up with innovative web-based metering solutions, which make for more effective management of energy use. Chief executive Dean Gowans says the company has brought the electricity meter out of the basement and put it on the desktop.

It supplies meters, reads them remotely and builds power consumption profiles ­ information that adds value for retailers and consumers.

"No one else in New Zealand or Australia has taken our end-to-end approach," Mr Gowans says.

Energy Intellect has invested "the best part of $10 million" in developing systems that combine metering with wireless radio cellular solutions and operate on existing public infrastructure. The technology allows it to read meters from New Zealand for clients in Singapore, the US and Australia. A pilot is under way in Turkey. Its ultimate aim is to make New Zealand a hub for energy information.

Energy Intellect prefers a joint venture style of investment. Two years ago, it established Stream Information with Vector, selling online consumption information to end-use multinational customers for use in contractual negotiations.

"It was used extensively throughout the power crisis," Mr Gowans says.


TrustPower

TrustPower excited executives because it had strong "ethics," was "proactive" and was a top performer. As the smallest of the five generator retailers, it has been able to maintain a niche-like focus on customer service, chief executive Keith Tempest says.

A senior management team with a wealth of experience dating back to power board days means the company knows what customers like, and a flat management structure enables it to act swiftly to deliver that, he says.

"The industry spends a lot of time considering [what to do]. We either do it or have done it already."

The company invests heavily in educating staff about its in-house value statement, called PRIIDE: Passion for customer service; Respect for stakeholders; Innovation; Integrity; Delivery "with attitude;" and Empowerment.

TrustPower has grown rapidly through acquisition. It now has 240,000 customers (up from 34,000), 34 hydro schemes and a wind farm, and $1 billion of assets (up from $40 million). It is doubling the size of its Tararua wind farm, which will be the largest in Australasia with 103 turbines.

Sales totalled $663 million last year, up from $428 million in the 1999/2000 year. After tax profit was $47 million, up from $1.3 million the previous year. Mr Tempest says, "Our profitability for our size over time is significantly better than our competitors'."

Other short-listed companies in the electricity and gas sector were: Meridian Energy, Swift Energy New Zealand, Vector, Wel Networks, Electricity Ashburton, Todd Energy, Genesis Energy, Contact Energy and Whisper Tech

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