NGC Reduces Electricity Market Risk
NGC Reduces Electricity Market Risk, Downgrades Earnings Forecast
Managing Director Mr John Barton today announced that as a result of the highly competitive and volatile market conditions the Company now expected to record an after tax loss, including a number of abnormals, mostly non cash items, for the year ended 30 June 2001 of between $280 million to $310 million.
The abnormal items also include the anticipated loss from a likely write-down of NGC’s electricity retail and trading business, the imminent sale of the retail electricity business in Christchurch to Meridian Energy, as well as the effects of abnormally high wholesale electricity prices for the month of June 2001.
Mr Barton said he expected that the combination of arrangements already concluded and others currently under discussion with various parties would reduce NGC’s exposure to the wholesale electricity market to less than 20 percent of its forecast demand. Details of these arrangements are commercially sensitive and confidential to the parties.
NGC was also maximising output from its own generation plants, promoting energy efficiency measures to reduce electricity consumption and assisting customers to save energy costs and maintain water levels in the hydro lakes.
Mr Barton said NGC was addressing the impact of the unforeseen, and unprecedented, increase in wholesale electricity prices and the measures being taken would help place NGC on a firm financial footing for the future. He emphasised that NGC was engaged in a range of businesses, founded on a balanced portfolio of assets and the Company’s infrastructure, electricity generation, gas processing and trading businesses were robust and continuing to trade satisfactorily.
NGC remained firm in its belief, however, that the extent of the wholesale price rise was not justified by the circumstances. All of the measures being taken by NGC were necessary because all three electricity markets, hedge, spot and retail, had not performed recently in accordance with any reasonable expectation. At NGC’s request, the Market Surveillance Committee of the NZEM was investigating whether an ‘undesirable situation’ had occurred in the market.