Contact Shares Fall as Low Power Prices Cut Outlook

By Tracy Withers

June 8 (Bloomberg) -- Contact Energy Ltd., New Zealand’s largest publicly traded energy company, slumped in Wellington trading after it said full-year earnings may fall more than previously expected.

Profit before interest, tax, depreciation and changes in the value of financial instruments may fall as much as 22 percent in the year ending June 30, Chief Executive Officer David Baldwin said in a statement to the stock exchange. Underlying profit may fall 33 percent, he said. The stock dropped 2.2 percent after earlier falling as much as 2.8 percent, the most since May 11.

Contact, half-owned by Sydney-based Origin Energy Ltd., said in January that underlying profit may fall 23 percent after output from its dams fell and gas costs rose. Since then, hydro lake levels have stayed high and an output cut at Rio Tinto Group’s Tiwai Point aluminum smelter has forced generators to spill water from their dams.

“The extremes we have seen in hydrology are reflected in low wholesale electricity prices,” Baldwin said.

The stock fell 13 cents to NZ$5.67 at the 5 p.m. market close in Wellington.

During May, the inflows into South Island hydro lakes were among the highest recorded and storage nationally was 1.36 times the historical mean, Contact said.

Average wholesale power prices during May were NZ$4 a megawatt-hour in the nation’s South Island from NZ$307 a year earlier, it said. North Island average prices fell to NZ$59 a megawatt-hour from NZ$272 in May last year.

Low prices have limited the requirement for thermal generation, reducing production from the company’s gas-fired plants, Baldwin said.

Contact, based in Wellington, reported underlying earnings of NZ$232.8 million ($145 million) in the year ended June 30, 2008, on earnings before interest, tax, depreciation and financial adjustments of NZ$567.2 million.

To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net.