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Retail margin analysis useful, but has limitations

MAJOR ELECTRICITY USERS' GROUP

Tuesday, 27th January 2004
For Immediate release
Media release by the Major Electricity Users’ Group (MEUG)

Retail margin analysis useful, but has limitations – overall profits tell a better story

“The reports released by the Minister of Energy today assessing retail margins for the industry as a whole and for the market in Invercargill in particular are welcome but need to be considered in light of the limitations of the analysis,” according to Ralph Matthes, Executive Director of the Major Electricity Users’ Group (MEUG).

“As the report by officials notes (paragraph 31) there are difficulties in estimating what the true mean wholesale price is and fluctuations in the wholesale price tend to dwarf estimates of retail margins.

“Electricity suppliers make margins not just at the retail level, but at the wholesale level also. It is the change in the aggregate level of margin that is important, not just one component. Overall profitability by suppliers rose significantly last year. Using reported Operating Surplus Before Interest and Tax (OSBIT) and noting that different companies have different balance dates; the most recent reported OSBIT compared to prior year follows:

Supplier OSBIT 2002 OSBIT 2003 Change 02-03
Contact Energy $200m $265m +20%
Meridian Energy $132m $172m +31%
Mighty River Power $87m $119m +37%
Genesis Power $70m $105m +50%

These aggregate results also need to be treated cautiously as some suppliers have gas and other activities that were already part of the business or added over 2002-03. Nevertheless the overall picture is of significantly growing profits – and that is likely to reflect growing margins also,” concluded Mr Matthes.

ENDS

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