Contact Energy has more than $350 million in spare change and will give it all to shareholders, but an analyst says the money should be used to lower people's power bills.
Te Mihi power station Photo: Contact Energy
The company said yesterday it had scrapped plans to invest in overseas power stations, leaving it with a massive cash surplus.
The spare $367 million will be paid to shareholders in a one-off special dividend in June.
Contact hinted it would invest in overseas power stations at the beginning of the year, and investors promptly responded with an emphatic thumbs down.
The listed company's shares fell more than eight percent, or 35 cents.
Contact Energy chief executive Dennis Barnes said the company listened.
"We just thought having unproductive capital in undated development was not something our shareholders wanted and they gave us that message loud and clear," he said.
"Essentially, we said we're going to keep our eye out - for the long term - for international opportunities, but very much focused in the short term on cash flow generation."
But energy analyst Molly Melhuish said the money should be used to lower power bills.
"I am offended by that because the consumers pay higher prices to enable new power stations to be built - it should be returned to consumers, not shareholders," she said.
Grey Power president Terry King agreed.
"The domestic consumer has been a long-suffering person for many, many years and electricity prices have increased consistently," he said.
"I think it's a retrograde step when they have the opportunity to look after their consumers and surely the consumer must be a priority."
But Forsyth Barr senior equity analyst Andrew Harvey-Green said returning excess cash to shareholders was standard practice.
"Prices - from Contact's perspective - the margin they've been earning from their retail customer base has been shrinking over the last few years," he said.
"This is just a function of investors getting that return on the investment Contact has made in the past."
At the end of last year, Mighty River Power made a one-off dividend payment to shareholders worth about $70 million.
A company director James Miller said it was a logical move, but he said Mighty River Power was not in the position to match Contact's massive special dividend.
Last year, Mighty River put its geothermal stations in Chile and Germany up for sale.
Both Mr Miller and Contact Energy's Dennis Barnes said overseas investment does not stack up.
Molly Melhuish said in that respect Contact had seen sense. "There's such a big surplus of electricity generation that no generator with any sense is going to invest in adding to the surplus - because they can't grow, not within New Zealand," she said.
Contact's announcement had a big impact on its share price yesterday.
By midday, shares had soared 78 cents, or 14 percent, and finished the day up 11 percent at $6.18.